AN ADJUSTMENT-COSTS MODEL OF EXPORT SUPPLY AND IMPORT DEMAND

Capital is treated as a quasi-fixed input subject to increasing marginal adjustment costs within a GNP function model of Canadian export-supply and import-demand responsiveness. Differences between long-run and short-run export-supply and import-demand elasticities are relatively small. However, considerable substitutability between labour and capital in the long run is observed and, since labour is also variable in the short run, this produces overshooting of labour demand. That is, an increase in export prices causes a large short-run increase in labour demand, but in the long run the capital stock is increased and substituted for some of the short-run labour increase. © 1990.