Abstract
Some recent empirical findings are used to motivate employing a model in which consumption exhibits durability, and habits develop over the flow of services provided by them, in order to study the effects of tariff protection on the current account. Durability leads to adjacent substitutability in consumption, while habits are assumed to lead to adjacent complementarity. If durability effects are dominant in the short run, and habit effects in the long run, then tariffs will lead to a current account surplus, which will be followed by a deficit. In the opposite case, a deficit will be followed by a surplus.
Similar content being viewed by others
References
Constantinides, George M. (1990) “Habit Formation: A Resolution of the Equity Premium Puzzle.” Journal of Political Economy 98:519–543.
Corden, W. Max (1987) “Protection and Liberalization: A Review of Analytical Issues.” IMF Occasional Paper 54.
Dornbusch, Rudiger (1992) “The Case for Trade Liberalisation in Developing Countries.” Journal of Economic Perspectives 6:69–85.
Engel, C. and K. Kletzer (1990) “Tariffs and Savings in A Model with New Generations.” Journal of International Economics 28:71–91.
Heaton, John (1995) “An Empirical Investigation of Asset Pricing with Temporally Dependent Preference Specifications.” Econometrica 63:681–717.
Mansoorian, A. (1993) “Tariffs, Habit Persistence, and the Current Account.” Canadian Journal of Economics 26:194–207.
Mansoorian, A. (1998) “Habits and Durability in Consumption, and the Dynamics of the Current Account.” Journal of International Economics 44:69–82.
Mehra, R. and E. Prescott (1985) “The Equity Premium: A Puzzle.” Journal of Monetary Economics 15:145–161.
Ostry, J.D. (1990) “Tariffs and the Current Account: the Role of Initial Distortions.” Canadian Journal of Economics 23:348–356.
Ostry, J.D. and A.K. Rose (1992) “An Empirical Evaluation of the Macroeconomic Effects of Tariffs.” Journal of International Money and Finance 11:63–79.
Papageorgiou, D., A. Choksi, and M. Michaely (1990) Liberalizing Foreign Trade in Developing Countries: Lessons of Experience. Washington, DC: World Bank.
Razin, A. and L.E.O. Svensson (1983) “Trade Taxes and the Current Account.” Economics Letters 13:55–57.
Ryder, Harl E. and G.M. Heal (1973) “Optimal Growth with Intertemporally Dependent Preferences.” Review of Economic Studies 40:1–31.
Sen, Partha and S.J. Turnovsky (1989) “Tariffs, Capital Accumulation and the Current Account in a Small Open Economy.” International Economic Review 30:811–831.
van Wijnbergen, S. (1987) “Tariffs, Employment and the Current Account: Real Wage Resistance and the Macroeconomics of Protectionism.” International Economic Review 28:691–706.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Mansoorian, A., Neaime, S. Habits and Durability in Consumption, and the Effects of Tariff Protection. Open Economies Review 11, 195–204 (2000). https://doi.org/10.1023/A:1008333322391
Issue Date:
DOI: https://doi.org/10.1023/A:1008333322391