the effects of taxation price control and government contracts in oligopoly and monopolistic competition abstract many government contracts with or policies towards oligopolistic sectors essentially involve private firms selling a given proportion or quantity of output to the government at a fixed price p r with the remainder being sold on the open market often this is combined with consumer rationing examples include cement and sugar in india and health housing and defence in many countries the paper investigates the effects of these schemes including sales and excise taxation on prices output and household welfare under oligopoly and monopolistic competition less government control reduced may raise prices and tax shifting can be above or below 100 percent

why voluntary export restraints are voluntary the paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint ver upon an importing firm a ver set at the free trade level of imports is shown to raise the profits of all firms within the industry the result follows as the imposition of a ver upon a free trade nash price competition forces the domestic firm to become an industry price leader the ver raises industry prices by facilitating collusion and lowers consumer welfare pourquoi les restrictions volontaires d 1 exportation sont volontaires ce memoire presente une analyse des effets de l introduction de restrictions volontaires a l exportation rve sur une entreprise qui importe dans un monde en equilibre oligopolistique on montre que l introduction de rve approximant le niveau des importations en regime de libre echange devrait augmenter les profits de toutes les entreprises dans l industrie cela decoule du fait que l imposition de rve sur un univers de concurrence par les prix a la nash en regime de libre echange force l entreprise domestique a devenir le leader en prix l introduction de rve augmente le niveau des prix de l industrie en facilitant la collusion et de ce fait reduit le niveau de bien etre des consomrnateurs

valuation of highly leveraged firms the financial policy highly leveraged firms hlfs commonly follow implies uncertain leverage explicit allowance for this characteristic leads to two complementary pricing models a recursive formula for the value of hlf follows from applying the adjusted present value apv approach to uncertain tax shields this formula is used to evaluate the robustness of the simple apv rule and other valuation approaches used in practice the hlf equity is also modeled as a call option with uncertain exercise price which provides a natural way of dealing with uncertain leverage and complements the apv approach both models require inputs that are usually observable the models developed in this article apply to the valuation of firms undergoing financial restructuring as well as to leveraged buyouts and project financing in all these situations firms deploy all or a significant portion of their free cash flow to debt reduction and their leverage ratio is uncertain

quantitative restrictions and the welfare effects of capital inflows abstract this paper explores the welfare effects of capital inflows when some imports are subject to quantitative restrictions it is shown that in a heckscher ohlin model where all imports are restricted by quotas and some fraction of the initial domestic capital stock is foreign owned a capital inflow is welfare improving regardless of the ranking of sectoral factor intensities with sector specific capital stocks and both tariff ridden and quota restricted imports the consequences of direct foreign investment in any sector are uncertain and depend upon whether the two imports are compensated substitutes or complements as well as the characteristics of production

infrastructure and development a critical appraisal of the macro level literature this survey reviews the existing macro level empirical literature on the link between infrastructure and development outcomes in a critical light after providing a general framework that casts the relevant terms of the controversy on the real effect of infrastructure on growth in the context of an aggregate production function it signals what are the relevant empirical questions to be addressed this guides the systematic review of a number of empirical studies and the discussion of the main econometric challenges to the identification of the effect of infrastructure on output and productivity finally building on related research in particular in contract theory and political economy the paper spells out several promising research avenues

china s technology spillover effects in the countries along the belt and road evidence from 49 bri countries china s aims for the belt and road initiative bri are to improve the trade and investment conditions along the bri routes and develop a value sharing platform with countries along the route to p

returns to scale in a highly regulated economy evidence from indian firms abstract this paper examines returns to scale for a panel of indian manufacturing firms from 1976 1985 a period in which government regulations restricted firms expansion observers have argued that these regulations led to unexploited scale economies in indian firms and our estimates lend limited support to this view although a large number of firms produce below the minimum efficient scale average returns to scale for the various industries are not significantly different from one our estimates suggest that recent deregulation will not generate significant gains in scale efficiency unless expansion is heavily biased towards growth in the smaller firms

protection and the harmful effects of endogenous capital flows abstract assume a country has in place a binding tariff and is a price taker on world markets in which capital is internationally mobile and unimpeded regardless of trade patterns possible specificity of capital or factor intensities an increase in the tariff harms the country if capital is frozen and harms the country even more when capital mobility brings rates of return into line among countries

borrowing for growth big pushes and debt sustainability in low income countries the paper evaluates big push borrowing and investment programs in a new model based framework of debt sustainability that is explicitly designed for policy analysis the new framework is grounded i

a pareto comparison of ad valorem and unit taxes in noncompetitive environments abstract a literature that began with wicksell 1896 has shown that an ad valorem tax is welfare superior to an equal yield unit tax in both monopoly and oligopoly markets this paper proves a stronger result for any unit tax imposed on a monopoly there exists an ad valorem tax that pareto dominates it that produces larger profit tax revenue and consumer surplus the paper then considers whether this pareto result generalizes to all cournot nash oligopolies the paper shows that pareto dominance holds in such markets whenever the tax level exceeds a critical value that depends on various market parameters

the effects of import quotas on national welfare does money matter recent evidence shows that there is an increasing use of non tariff barriers to trade ntbs and especially of quantitative restrictions such as import quotas in the world economy to protect import competing industries see table i 1 international trade theory however has traditionally focused on the welfare effects of tariffs as well as on the equivalence between tariffs and quotas with little attention paid to the welfare implications of quotas the latter have basically been restricted within the traditional heckscher ohlin trade model where for the case of a small open economy import quotas always reduce welfare a few recent studies have attempted to fill in this gap in the literature for instance young 19 compares optimal tariffs and quotas for a large country in a stochastic environment neary 14 on the other hand investigates the welfare implications of tariffs quotas and voluntary export restraints under different assumptions on capital mobility finally chao hwang and yu 3 4 examine the welfare effects of import quotas under variable returns to scale although the existing literature has generated important policy implications most of the analysis has been conducted within a barter exchange framework it is well known however that the introduction of money can alter results obtained within a non monetary environment 2 accordingly this paper attempts to re examine the welfare effects of import quotas for a small monetary economy we develop a two sector trade model in which money enters the economy

welfare gains from capital inflows under import quotas abstract the presence of tariffs was assumed in the literature which examined the effect of additional foreign investment on the welfare of the host country in the small country setting however this paper analyzes the case of import quotas and shows that additional inflows of foreign capital improve the host country s welfare when import quotas are kept constant

are small firms willing to pay for improved power supply evidence from a contingent valuation study in india abstract this paper provides new estimates on indian small scale manufacturing firms willingness to pay wtp for reliable power supply almost half of indian manufacturing lies in the small scale sector and its productivity is severely affected by power outages however there is a surprising paucity of research on small firms wtp for avoiding outages we conduct a double bounded dichotomous choice contingent valuation experiment with a random sample of 260 small scale firms in the region around hyderabad we find that on average firms are willing to pay approximately 20 more for uninterrupted power supply the wtp estimates and the explanatory factors for the firms decisions were tested for robustness using both probit and bivariate probit models in addition a two step heckman correction was used to control for selection bias induced by protest responses our results are vital to understand behavior of small firms which are crucial to india s economic growth further the government s continued emphasis on power sector reforms makes the paper even more important as it provides realistic estimates for designing tariffs while keeping in mind the preferences of the small scale industry

infrastructure investment a review essay economists try not to be faddists but they often cannot help themselves while work on a topic should mirror the prospective importance of the topic that situation seems to occur with disappointing frequency instead the usual pattern is that some reasonably important topic will be totally ignored for the longest time then recognized and then the subject of a flurry of work all out of proportion to its likely long run importance nowhere has this speculative bubble of economic research been more clearly illustrated than with infrastructure investment macroeconomists havelong felt that the stock of public capital is an important factor input in the production of total output macroeconomists have known that u s productivity growth slowed dramatically in about 1973 and macroeconomists should have known that united states investment in public capital has been down since the late 1960s yet analysis of the u s productivity slowdown completely ignored infrastructure investment for the first fifteen years of this slowdown concentrating instead on energy prices social regulation the composition of the work force research and development different rates of obsolescence of the private capital stock and any number of other matters the public capital stock was hardly ever even mentioned as a potential factor in the productivity slowdown aschauer changed all that he wrote a series of papers 1989a 1989b 1989c that put these two movements together econometrically infrastructure investment turned down and aggregate productivity turned down slightly later both in the united states and in some other developed countries his work hit the magic button those who had worried about the productivity puzzle for fifteen years welcomed a new suspect those who were worried about low rates of u s national saving welcomed a new way to make their argument even more forcefully than with official figures on saving and investment which do not count infrastructure investment as investment political liberals and liberal politicians saw a way to rescue government spending and projects from the assaults of reaganism and even a way to avoid oth

costs of deficient infrastructure the case of nigerian manufacturing as cities in developing countries continue to grow rapidly the need to meet the increasing demand for urban infrastructure services has become an important policy problem since failures to respon

the comparison between ad valorem and specific taxation under imperfect competition abstract this paper compares ad valorem and specific taxation in two models of oligopoly with and without free entry predominantly ad valorem taxation implies a relatively low consumer price high tax revenue and when entry is precluded low profits ad valorem taxation dominates specific taxation from the welfare perspective the set of circumstances under which with free entry specific taxation raises welfare is a strict subset of that in which ad valorem taxation is welfare improving and in both models the maximisation of consumer welfare subject to a binding revenue constraint requires maximum reliance on ad valorem taxation

infrastructural investment in long run economic growth south africa 1875 2001 summary productive public expenditure in the area of infrastructure such as roads transportation and housing can play an important role in promoting economic growth and encouraging private investment developments in endogenous growth theory introduce the possibility of a productive role for public expenditure this paper seeks to explain the relationship between investment in economic infrastructure and long run economic growth by examining the experience of south africa in a time series context the main findings that emerge from our examination of economic growth and economic infrastructure in south africa may be summarized as follows investment in infrastructure does appear to lead economic growth in south africa and does so both directly and indirectly the latter by raising the marginal productivity of capital there is weak evidence of feedback from output to infrastructure while the finding of an infrastructure growth impact is robust

domestic distortions and international trade in this paper we develop techniques for measuring the trade policy equivalent of domestic distortions using a distance function approach our measure the trade restrictiveness index is shown to equal the uniform tariff which is welfare equivalent to a given pattern of domestic taxes and subsidies we extend the index to incorporate taxes in markets for nontraded goods and factors of production and illustrate its operationality with an application to liberalisation in mexican agriculture we conclude that our index has considerable potential in empirical work and as an aid to trade negotiators it is widely appreciated that government policies of a purely domestic nature can have major implications for a country s international trade to give just one example such implications were widely discussed in the context of the recent gatt round in which u s negotiators insisted that intra ec agricultural policy should be viewed as trade distorting however analysts and negotiators have not hitherto had access to a conceptual framework which would allow the trade effects of domestic policies to be measured in a consistent way in this paper we propose such a framework and show how it may be implemented empirically of course other attempts have been made to quantify the overall distortionary effects of domestic policies these have involved constructing empirically based indexes such as producer or consumer subsidy equivalents 2 however such measures have no theoretical foundation moreover since they use the shares of different sectors in production or consumption as weights they are likely to be systematically biased for example sectors whose output levels are reduced by high taxation are assigned low weights whereas their true weights should be higher by contrast we show below that our approach is based firmly on welfare economics and correctly uses marginal rather than average production and consumption shares as weights the approach we propose draws on recent work by two of the authors anderson and neary 1990 1992b which dealt with trade distortions only that work developed a scalar index the trade restrictiveness index or tri which equals the equiproportionate rate of trade restriction which is equivalent in welfare terms to

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

equilibrium number of firms and economic welfare in a spatial price discrimination model abstract we examine welfare implications of the equilibrium number of entering firms in a spatial price discrimination model in contrast to salop salop s 1979 monopolistic competition with outside goods bell journal of economics 10 141 156 the equilibrium number of firms can be either excessive or insufficient from the normative viewpoint

protectionary bias in agriculture a pure economic argument abstract empirical evidence suggests that the agricultural sector in the developed countries has enjoyed a greater degree of protection than the import competing manufacturing sectors usually this is attributed to strong farm lobbies and hence on political factors we provide a theoretical model and a possible explanation of this phenomenon based on purely economic arguments two importables are accommodated in a three good three factor model of trade and production one is a labor intensive manufacturing good and the other is an agricultural commodity this captures the trade pattern of a typical industrialized country with an agricultural sector such as europe and the usa we show that uniform tariffs in agriculture and labor intensive manufacturing will definitely hurt the land owners in real terms and may reduce their absolute return hence if there has to be protection it has to be biased in favor of agriculture

effects of restraining steel exports from the republic of korea and other countries to the united states and the european economic community in this article a model is developed to evaluate the impact on an exporting country of a restraint imposed on its export by an importing economy in the context of a three region model of world trade in a single product the welfare changes in any of the three regions in the model and in the global economy can be evaluated the model is applied to the restraints imposed on steel exports from the republic of korea to the united states and the european economic community eec the united states and the eec are found to have incurred significant losses as a result of the restraints the largest part of these losses are quota rents transferred to korea and the rest of the world under reasonable parameter assumptions korea and the rest of the world obtain net gains from the quotas because the resource misallocation costs are smaller than the quota rents the model is modified to analyze a tariff barrier rather than a quantitative restraint it is found that an equivalent tariff on steel transforms korea and the rest of the world from net gainers to net losers as a result of a restraint

taxation and welfare in an oligopoly with strategic commitment this paper establishes comparative statics results for an oligopoly model with strategic commitment firms compete in two stages in the first stage firms decide on strategic cost reducing r d investment whereas they choose output in the second stage taking an excise tax subsidy as a shift parameter in the second stage game the short run as well as long run effects on output cost reducing r d investment and second best welfare will be examined the crucial role played by the strategic substitutability of outputs as well as cost reducing r d investments is clarified and a variant of the le chatelier samuelson principle in the authors game theoretic model is obtained copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

oligopolistic competition and economic welfare a general equilibrium analysis of entry regulation and tax subsidy schemes abstract two contributions to the general equilibrium analysis of an oligopolistic economy with free entry are intended first we generalize the excess entry theorem to the effect that a marginal decrease in the number of oligopolistic firms from the free entry equilibrium level improves economic welfare second we explore the pareto improving tax subsidy schemes in an oligopolistic economy several self financing and pareto improving tax subsidy schemes will be identified in contrast with the preceding analysis by atkinson and stiglitz which focused on the long run incidence of corporate taxation we analyse the short run as well as long run welfare implications of various policies under generalized conditions

urban development excessive entry of firms and wage inequality in developing countries this paper examines the short and long term effects of urbanisation via favourable urban development policies on income distribution and social welfare for a developing country in which the urban manufacturing sector is characterised by imperfect competition and free entry urbanisation shifts rural workers to the highly productive urban sector while causing production in urban firms to expand because of scale economies however urbanisation may worsen wage inequality between skilled and unskilled labour in the short term in the long term urbanisation can attract new firms to the urban sector and favourable urban development policies may result in excessive entry of firms which can amplify wage inequality in the economy this entry amplifying effect is confirmed empirically especially for low and lower middle income countries if the entry effect is not considered the impact of urbanisation on wage inequality could be understated by 13 for low and lower middle income countries

export share requirements trade balances and welfare a two period analysis abstract this paper provides a two period three sector general equilibrium model for examining the effects of a temporary increase in export share requirements to foreign owned firms on the trade balance and national welfare the analysis suggests that the policy of a temporary rise in export requirements results in increases in the non tradable prices for both periods as well as intertemporal welfare the policy also leads to an improvement in the first period trade balance

development a study of the indian manufacturing industry if infrastructure tends to generate spillover externalities as has been the assumption in much of the development literature one may reasonably look for evidence of such indirect effects in the accounts of manufacturing industries empirical support for this assumption has so far been ambiguous this analysis of indian data however reveals substantial externality effects from the states infrastructure to manufacturing productivity the analysis separates the direct effects of roads and electricity as mediated by the infrastructure services purchased by manufacturing industries along with other intermediate inputs from the indirect effects as measured by the impact of infrastructure capacity on the solow productivity residual in the 20 years from 1972 to 1992 growth of road and electricity generating capacity seems to have accounted for nearly half the growth of the productivity residual of india s registered manufacturing

the transaction costs driving captive power generation evidence from india the 2003 indian electricity act incentivizes captive power production through open access in an attempt to harness all sources of generation yet we observe that only some firms self generate while others do not in this paper we give a transaction cost explanation for such divergent behavior using a primary survey of 107 firms from india we construct a distinct variable to measure the transaction specificity of electricity use the make or buy decision is then econometrically tested using probit model results are highly responsive to transaction specificity and the likelihood of captive power generation is positively related to it at the industrial level this explains why food and chemical firms are more likely to make their own electricity since the burden of poor grid supply is highest on smaller sized and high transaction specific firms the grid access policies need to account for firm level characteristics if government wants to incentivize captive power generation

trade liberalization in oligopolistic competition with unemployment a general equilibrium analysis this paper examines the short and long run effects of partial trade liberalization through relaxation of quantity restrictions in an oligopolistically competitive economy with unemployment while the short run effects of the liberalization policy are ambiguous its long run impacts are clear the policy dampens the price of the imported goods raises firms output and reduces the number of firms furthermore the policy lowers the unem ployment ratio and hence improves welfare when the economy suffers from sector specific unemployment whereas the policy may aggravate underemployment and thus may lower welfare for a labour surplus economy

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

a note on the nonequivalence of import barriers and voluntary export restraints abstract this paper uses a general equilibrium approach to analyze the consequences of import barriers and voluntary export restraints with respect to international prices and domestic prices under the assumption of perfect competition in all markets it shows that the final outcome with respect to domestic prices depends on the way in which governments allocate the revenue arising from the restrictions the equivalence result obtained by using partial equilibrium is only one of the possible outcomes

entry barriers and economic welfare the relationship between economic welfare and the number of firms in a quasi cournot market is examined in the first place we presuppose the existence of a strong first best government that can enforce the marginal cost principle to the firms along with regulating the number of firms it is shown that there exist excessive number of firms at the free entry quasicournot equilibrium vis a vis the first best welfare maximizing number of firms the thrust of this result essentially survives even if we replace a utopian first best government by a secondbest government that leaves the firms to pursue their respective profit maximization freely and engages solely in regulating the number of firms it can be shown that the excess entry prevails again in this second best world recent studies in the theoretical industrial organization literature have uncovered several instances which cast serious doubt on the reasonableness of a widespread belief that increasing competition will increase welfare stiglitz 1981 p 184 it has been shown that there are cases which are not altogether unreasonable where social welfare will be increased by strengthening rather than weakening the protection of incumbent firms from the threat of potential entry this is in sharp contrast with the traditional belief 2 what is not known however is how robust these pathologies in fact are we intend to settle this problem by proving two excess entry theorems in the quasi cournot parametric conjectural variations homogeneous oligopoly model seade 1980a b in the first place we presuppose the existence of a strong first best government that could costlessly enforce the marginal cost pricing principle by firms in an oligopolistic market and regulate entry in pursuit of first best social welfare optimization it is shown that the number of firms at the free entry equilibrium exceeds the first best welfare optimizing number of firms the result has already been noted by von weizsacker 1980a b and others in terms of numerical examples our theorem 1 asserts that this phenomenon always holds true for the family of quasi cournot models at hand an implication of this result is that the existence of entry barriers which protect incumbent firms from potential competitors is not necessarily welfare decreasing in sharp contrast with the traditional belief a problem remains with theorem 1 however in that an omnipotent first best government does not exist in reality and the first best ideal is unrealizable in the actual economy therefore even if the intervention by a first best government with a view to restricting the number of firms within an industry may be welfare improving it does

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

tariffs foreign capital and immiserizing growth with urban unemployment and specific factors of production abstract in this note we show that a recent observation of brecher alejandro as regards tariff induced capital inflows essentially extends to a setting with urban unemployment three factors of production and a variety of labor market conditions in the urban sector

risk aversion and optimal trade restrictions if the representative consumer of a country is risk averse then the choice of trade controls must take account of their effects on the fluctuations of domestic real income if the world price of the importable is uncertain and risk aversion is high then the optimal policy for achieving a ceiling on expected imports involves a reduction in imports and a rise in the domestic price as the world price falls moreover a quota is superior to a tariff in achieving the ceiling under domestic uncertainty a tariff is superior to a quota but it could be optimal to reduce the domestic price as imports increase economists have long recognized the equivalence of price and quantity controls under certainty the comparison of these control modes and the characterization of the optimal form of control under uncertainty has been undertaken by two groups of authors weitzman 1974 1978 considered a planning authority which faces uncertainty about the costs and benefits of producing a good he showed that the ranking of price and quantity controls depends on the curvature of the cost and benefit functions and that an optimal policy can be considered as a mixture of price and quantity controls his work was developed by laffont 1977 ireland 1977 malcomson 1978 and yohe 1978 in the context of international trade the comparison of tariffs and quotas under uncertainty has been undertaken by fishelson and flatters 1975 pelcovits 1976 dasgupta and stiglitz 1977 young 1979 1980a b and helpman and razin 1980 recently young and anderson 1980 showed that the policy maximizing expected consumer s surplus given a constraint on expected imports expected import expenditure is a specific tariff an ad valorem tariff in contrast to weitzman s planning model the price instrument is superior to the quantity instrument whatever the curvature of the benefits function 2 the conclusion of young and anderson appears to provide a strong argument against using quantity instruments to restrict trade however the expected surplus criterion is a valid welfare measure only if the marginal utility of income is constant in this paper we characterize the optimal form of trade restriction if the representative consumer of the importing country exhibits risk aversion toward income fluctuations the optimal policy can have surprising properties properties which with high risk aversion are better approximated by a quota rather than a tariff hence the second best justification for using quantity controls to restrict trade turns out to depend on

final and intermediate goods taxation in an oligopolistic economy with free entry abstract optimal tax rules are analyzed in an oligopolistic economy with free entry the initial market allocation has two types of distortion price is set above marginal cost by the oligopolistic behavior and the advantage of increasing returns to scale is left to be unexploited by excessive entry of oligopolists with production subsidy accompanied by a self financing lump sum franchise tax on oligopolistic firms pareto efficient allocation could be restored without a lump sum tax on oligopolists however the second best optimum requires taxing intermediate inputs used in the oligopolistic industry the optimal intermediate goods taxation follows the production side ramsey rule to encourage the use of intermediate inputs elastic to output level and vice versa

international factor mobility minimum wage rates and factor price equalization a synthesis this paper examines the behavior of a small open economy facing perfectly elastic supply curves for some of its productive factors in particular the paper derives some comparative statics properties of such economies compares them with the properties of otherwise identical economies in which all factor prices are determined endogenously and investigates the relationship between factor price rigidities factor price equalization and the pattern of specialization among the new results which are proved it is shown that as more and more factor price rigidities are imposed on an economy it comes closer to a state of factor price equalization

monopolistic competition nonhomotheticity and the stability of the chamberlinian tangency solution the focal point in the recent literature on international trade and monopolistic competition is to recast the chamberlinian partial equilibrium theory in a general equilibrium framework using a similar setting this paper asks whether the chamberlinian tangency solution is stable under general equilibrium paradoxical results follow when entry occurs profit per firm can increase and the tangency solution can be unstable a necessary and sufficient condition for stability is obtained the concepts of average and marginal factor intensities play an important role in obtaining the stability copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the effect of weather induced internal migration on local labor markets evidence from uganda relying on census data collected in 2002 and historical weather data for uganda this paper estimates the impact of weather induced internal migration on the probability for non migrants living in the destination regions to be employed consistent with the prediction of a simple theoretical model the results reveal a larger negative impact than the one documented for developed countries they further show that this negative impact is significantly stronger in ugandan regions with lower road density and therefore less conducive to capital mobility a 10 percentage points increase in the net in migration rate in these areas decreases the probability of being employed of non migrants by more than 10 percentage points

foreign capital inflows and welfare in an economy with imperfect competition abstract this paper examines the resource allocational and welfare effects of exogenous inflows of foreign capital in a general equilibrium model with oligopolistic competition and unemployment although the welfare impact for the short run is ambiguous and dependent upon the strength of excess profits and scale economies relative to unemployment in manufacturing in the long run additional inflows of foreign capital always improve national welfare with capital mobility hence attracting foreign capital remains a sound policy for economies characterized by imperfect competition scale economies and regional unemployment

tariffs quotas and voluntary export restraints with and without internationally mobile capital this paper presents a general framework for comparing the effects of tariffs quotas and vers voluntary export restraints both with and without international capital mobility expressions for the shadow price of foreign exchange and the shadow price of capital under each type of trade restriction are derived and it is shown that although international capital mobility raises the welfare cost of tariff protection it lowers the welfare cost of quantitative restrictions in most cases the effects of exogenous shocks in the presence of quotas are intermediate between those in the presence of tariffs and those in the presence of vers tarifs douaniers contingentements et restrictions volontaires d l exportation quand le capital est ou n est pas mobile internationalement l auteur presente un cadre general d analyse qu il utilise pour comparer les effets de tarifs douaniers de contingentements et de restrictions volontaires a l exportation dans des contextes ofu le capital est ou n est pas mobile internationalement l auteur derive le prix fictif du change etranger et le prix fictif du capital sous l un et l autre types de restrictions au commerce et montre que meme si la mobilite internationale du capital augmente le cofut en terme de bien etre de la protection tarifaire elle reduit le cofut en terme de bien etre des restrictions sur les quantites echangees dans tous les cas les effets de chocs exogenes quand des contingentements existent sont toujours dans la fourchette entre ceux qu on observe quand des tarifs douaniers existent et ceux qui prevalent quand des restrictions volontaires i l exportation existent

debt policy and the rate of return premium to leverage equilibrium in the market for real assets requires that the price of those assets be bid up to reflect the tax shields they can offer to levered firms thus there must be an equality between the market values of real assets and the values of optimally levered firms the standard measure of the advantage to leverage compares the values of levered and unlevered assets and can be misleading and difficult to interpret we show that a meaningful measure of the advantage to debt is the extra rate of return net of a market premium for bankruptcy risk earned by a levered firm relative to an otherwise identical unlevered firm we construct an option valuation model to calculate such a measure and present extensive simulation results we use this model to compute optimal debt maturities show how this approach can be used for capital budgeting and discuss its implications for the comparison of bankruptcy costs versus tax shields

productivity growth and factor prices in east asia the industrial revolution in several east asian countries over the last three decades is one of the most important economic events in the postwar era several recent growthaccounting exercises have found that their extraordinary rate of output growth was due primarily to an equally impressive rate of factor accumulation with little due to technological progress see alwyn young 1992 1995 jong il kim and lawrence lau 1994 susan collins and barry bosworth 1996 since these studies suggest that factor accumulation has been the lead actor in east asia s growth many economists have reached the conclusion that the industrial revolution in east asia can largely be explained in terms of transition dynamics in a neoclassical growth framework see e g paul krugman 1994 n gregory mankiw 1995 if this view is correct the lesson from east asia s experience is that there are no easy solutions for a poor country that seeks to join the league of wealthy nations low levels of investment and education may be the result of bad policies but once proper policies are enacted a poor country faces the grim prospect of a further decline in its already low standards of living as it devotes more resources to investment and education the central point of this paper is that if east asia s growth was largely driven by capital accumulation with little technological progress the return to capital should have fallen dramatically as capital accumulation encounters diminishing returns for example the capital output ratio for korea computed from the national accounts has increased at an average rate of 3 4 percent per year from 1966 to 1990 while that of singapore has increased at an average rate of 3 7 percent per year from 1968 to 1990 by dividing the share of payments to capital in total income by the capital output

welfare implications of growth under quotas abstract using the standard trade model it is shown that growth under quotas always improves welfare this result is contrary to johnson s 1967 result on the possibilities of immeserizing growth in the presence of tariffs

external increasing returns and the shadow price of foreign exchange abstract this paper shows that under external increasing returns to scale and a strictly concave production possibilities frontier the shadow price of foreign exchange in the presence of a tariff is the same as that in an economy with purely constant returns to scale however with a quota or a voluntary export restraint this shadow price is in general quite different from that in a purely constant returns to scale economy

on the harris todaro model with intersectoral capital mobility n b professor neary was based at trinity college dublin when this article was first published the full text of the article is not available in ora at this time citation neary j p 1981 on the harris todaro model with intersectoral capital mobility economica 48 191 219 234

tariffs quotas and domestic content protection some political economy considerations in this paper we have focused our attention on the relation between the configuration of protection seeking and of rent seeking interests and the choice of the protection instruments in doing so we have abstracted from the problem of nonequivalence of tariffs and quotas recent writings on product differentiation rodriguez 1979 donnenfeld 1984 have thrown new light on this old issue it may well be that the discussion is of key importance to the understanding of industry s predilection for quantitative restraints we also failed to deal with the question on nonequivalence of restrictive measures under conditions of uncertainty finally we touched only peripherally on the interaction among state it is perhaps more realistic to regard trade barrier formation as a game among nations as in baldwin and clarke 1985 every player seeks at once to protect its import substituting industries and to promote its exports by putting up barriers and by demanding that others lower theirs this approach is more suited however to explain the severity of restraints than it is to explain the nature of restraints which is the problem at hand trade restrictions have a protective and a revenue effect in less developed countries with ineffectual internal revenue collecting systems revenue seeking governments may ally themselves with protection seeking emergent industries and institute high tariffs tariffs and quotas may coexist if the trade restriction seeking alliance includes traders voluntary export restraints the newest of the protective devices may be popular because they circumvent international treaties and short circuit cumbersome procedures associated with changes in tariffs or quotas but they also have the virtue of inviting foreign exporters to act like price setters the harm to the foreign exporters is thereby mitigated in fact exporters may be gainers hence the danger of retaliatory action on the part of foreign governments is lessened domestic content legislation is a unique device in that the same domestic factor benefits from protection and also collects the protection created revenue we show the formal identity between the south african situation in which the maximum black white worker ratio is a binding constraint and regulations requiring that a given percentage of the value of the product be domestically produced we also derive formally the maximum permissible foreign content ratio which is optimal from the point of view of the protected interests in our analysis we have said virtually nothing about the victims of protectionism a discussion of the impact of the various measures on those who bear the cost of protection would doubtless deepen our understanding of the problem we should thus consider the magnitude of the deadweight loss and of the income transfer and the concentration or dispersion of the losers last but not least we should consider the question of awareness thus the cost impact of a tariff is easier to perceive than that of a quota with the cost of a ver or of domestic import content rule the most difficult to calculate of all it may be that the principle of the hiding hand is as important to the new political economy as the benthamite principles were to the old

import quotas and vers a comparative analysis in a three country framework abstract because a ver is inherently discriminatory the traditional two country analysis comparing it to a quota is inadequate this paper adopts a general equilibrium three country approach to compare tariffs quotas and vers a quota equivalent ver is defined alternatively in terms of quantity or price the welfare of the importing country is higher under a quota and that of the non restricted exporter is higher under a ver the welfare comparison for the ver restricted country is ambiguous a result which is at variance with conventional wisdom

innovating with infrastructure how india s largest carmaker copes with poor electricity supply abstract conventional wisdom suggests that self generation is a high cost and inefficient but often unavoidable solution to unreliable public power supply in developing countries this article examines the power problem from the perspective of a large industrial user and its upstream supplier firms in india it analyzes the innovative generation and power sharing system that this firm has devised to solve both its own power problems as well as those facing some of its suppliers this research finds not only that self generation is economical but also that self generation combined with power sharing serves as a model that policy makers can replicate to ameliorate the power problems plaguing firms in developing countries

reformulating tax shield valuation a note standard financial theory in the absence of agency costs and personal taxes implies that each dollar of debt contributes to the value of the firm in proportion to the firm s tax rate to derive this result incremental debt is assumed permanent this paper shows that when the firm acts to maintain a constant market value leverage ratio the marginal value of debt financing is much lower than the corporate tax rate since hamada s 2 unlevering procedure for observed equity betas was derived under the assumption of permanent debt we derive an unlevering procedure consistent with the assumption of a constant leverage ratio implicit in the modigliani miller 4 hypothesis regarding the effect of leverage changes on firm value is that the firm maintains a constant level of debt the purpose of this paper is to examine the implications for tax shield valuation of maintaining a constant market value leverage ratio instead of a constant debt level assuming a constant leverage ratio instead of a constant debt level does not imply any change in the normative implications of capital structure theory however we show that when the firm s financing strategy is to maintain a constant market value leverage ratio the marginal value of a change in debt level resulting from a change in this leverage ratio is much lower than the corporate tax rate we also derive the relationship between the firm s equity beta and its unlevered beta under the assumption of a constant leverage ratio

ramsey tax rules for economies with imperfect competition abstract this paper derives optimal commodity tax rules for a general equilibrium model with imperfect competition to achieve this functions are constructed that describe the effects of taxation upon the equilibrium prices and profit levels of imperfectly competitive industries the use of these functions allows existing tax rules to be generalised to accommodate imperfect competition

infrastructure externalities and regional industrial productivity in china a spatial econometric approach this paper evaluates infrastructure s impact on regional industrial productivity in china and distinguishes between within and cross region effects three infrastructure assets are examined elect

socio technical inertia understanding the barriers to electric vehicles it is widely accepted that electrification of the transport sector is one of several technological trajectories that could redress some of the environmental issues associated with the growth in travel demand including climate change and oil demand at a global scale and air quality and noise pollution at the urban scale electric vehicles have been considered a promising technology at repeated intervals over the last century but this promise has not been realised this paper is a contribution to understanding the key tools and strategies that might enable the successful introduction of new technologies and innovations by exploring the key barriers to electric vehicles encountered in two countries uk and germany where the automobile industry has been historically significant the study evaluates stakeholders opinions on relevant regulation infrastructure investment r d incentives and consumer incentives the key findings of the research are that the introduction and penetration of evs is confronted by several barriers that inhibit a larger market penetration under current conditions which in turn casts doubt on the assumptions of strategic niche management and transitions theory

explaining ethiopia s growth acceleration the role of infrastructure and macroeconomic policy summary ethiopia has experienced an impressive growth acceleration over the past decade this was achieved on the back of an economic strategy emphasizing public infrastructure investment supported by heterodox macro financial policies this paper identifies the drivers of ethiopia s recent growth episode and examines the extent to which they were typical or unique it combines country specific information with the results of a cross country panel regression model we find that ethiopia s growth is explained well by factors correlating with growth in a broad range of countries in recent decades including public infrastructure investment restrained government consumption and a conducive external environment on the other hand we argue that the policy mix that supported very high levels of public investment in ethiopia was to some extent unique interestingly macroeconomic imbalances due to this heterodox policy mix only moderately held back growth which helps explain why ethiopia was able to grow so fast in spite of their presence their negative effects were quantitatively much less important than the positive growth drivers they helped to achieve the results suggest that getting infrastructure right may outweigh moderate shortcoming in the macro framework at early stages of development we further relate this country specific finding to the recent growth literature

costs of infrastructure deficiencies for manufacturing in nigerian indonesian and thai cities this paper is a sequel to an earlier paper on nigeria published in this journal using the fresh results obtained from the sample survey of manufacturing establishments conducted in indonesia and t

firms operating under electricity constraints in developing countries many developing countries are unable to provide their industrial sectors with reliable electric power with the result that many enterprises must contend with an insufficient and unreliable supply of electricity because of these constraints enterprises often opt for self generation of electricity even though it is widely considered a second best solution this paper develops a theoretical model of investment behavior in remedial infrastructure in the presence of physical constraints it then illustrates the model s predictions using a large cross country sample of enterprises from the world bank enterprise survey database electricity intensive sectors in high outage countries are characterized by a significantly lower share of small firms