THE PARALLEL MARKET IN CENTRALLY PLANNED ECONOMIES

This paper presents some general-equilibrium models of the parallel market in centrally planned economies. The models are based on the hypotheses that private firms can operate more efficiently than bureaucratically-run state enterprises and that Soviet-type economies are characterized by price controls and quantitative allocations. The state's enforcement policy is explicitly modeled. Although the welfare implications of the parallel market for workers are ambiguous in general, under a variety of circumstances they turn out to be negative. For instance, responding to the shortage created by price controls, illegal firms divert resources from the official economy into the parallel market. The result is a higher price in the parallel market without any increase in the total supply of the good.     

Politics of free trade areas: tariffs versus quotas

In this paper we compare and contrast the political viability of bilateral Free Trade Area (FTA) Agreements in the presence of tariffs and quotas. Assuming that the government maximizes a weighted sum of welfare and producer profits, we show that the political viability of FTAs varies according to whether trade restrictions take the form of tariffs or quotas. A key result is that whereas an FTA is unambiguously rejected by one of the countries under a tariff, it may be endorsed by both trading partners under a voluntary export quota or import quota that provides equal protection as the tariff.     

Growth and Election Outcomes in a Developing Country

We offer the first test of the hypothesis that rapid growth helps incumbents win elections for a developing country, India. We generalize the Fair (1978) model to allow for multiple candidates and test it using cross‐state data on 422 candidates in the 2009 parliamentary elections. We find quantitatively large and statistically robust effect of growth on the prospects of the candidates of the state incumbent parties to win elections.     

Cost of Protection: A Second Look at the Romer Variety Effect

The welfare loss calculated by Romer (J Dev Econ 43:5-38, 1994) under the assumption that certain import varieties disappear a result of increased protection are an order of magnitude larger than those obtained by any other investigator. In this paper, we will argue that the key source of Romer’s result is the total absence of domestic varieties of the differentiated product. Once we allow the differentiated product to be produces at home, the results change dramatically. This allows for the realistic possibility that domestic production substitutes for imports once tariffs are imposed.     

Do transport costs justifyregional preferential trading arrangements? no

Do Transport Costs JustifyRegional Preferential Trading Arrangements? No. — This paper reaches two conclusions. First, in evaluating PTAs, no special consideration need be given to transport costs over other types of costs. Unless one focuses on cases in which PTA and global free-trade outcomes are identical, it does not matter whether differences in delivered prices result from transport costs or from differences in technology or factor endowments. Second, gravity models are inherently incapable of giving any guidance on whether a specific grouping is desirable or whether transport costs make regional PTAs desirable. The gravity equation is consistent with virtually any trade model. The welfare implications of PTAs, however, depend crucially on the specific model.     

Bhagwati and Ramaswami: Why it is a Classic

This paper expounds on a well‐known and widely influential paper ‘Domestic Distortions, Tariffs and the Theory of Optimum Subsidy’ (1963) by Bhagwati in collaboration with V. K. Ramaswami. The message of the paper, which set in trail a number of publications, was that in the case of a small open economy, distortions that steer the economy away from Pareto‐optimal outcomes should be dealt with at their source. The Bhagwati and Ramaswami paper established the case for free trade in the presence of domestic distortions, and proved wrong the received wisdom of the day that in the presence of distortions such as externalities, wage rigidities and distorted factor and product markets, a move from free trade to autarky might improve welfare. The article succinctly demonstrated that the correct policy intervention which avoided welfare losses was one which rectified a distortion at its source and is justly regarded as a classic. But in the profession of economics those who question received wisdom are regarded with scepticism at first and then with the riposte that it is all old wine served in new bottles. The Bhagwati‐Ramaswami breakthrough was met with the remark ‘it is all in Meade’. This paper takes issue with this judgement. The paper not only refutes the suggestion that the Bhagwati‐Ramaswami article has its origins in Meade but also provides a lucid and succinct exposition of Meade's analysis of divergences and shows how Bhagwati and Ramaswami's analysis is vastly different.     

Injury Investigations in Antidumping and the Super-Additivity Effect: A Theoretical Explanation

Empirical evidence shows that in injury investigations in antidumping cases conducted by the United States International Trade Commission, the probability of a positive finding is higher when the number of defendant firms is larger, holding constant their total market share. In the paper we offer a theoretical explanation of this finding. We show that the presence of many exporters exacerbates the free-rider problem, which leads every firm to invest less on defense. Thus for the same market share, injury finding is more likely to be positive for many small sellers than a few large sellers. JEL no. F13, L13