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Conditional Policies in General Equilibrium

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  • Kala Krishna

Abstract

Obtaining lower generalized system of preferences (GSP) tariffs requires meeting costly Rules of Origin (ROOs). Growing coffee in the shade is more costly, but yields a price premium. This paper analyzes the effects of such restrictions in a general equilibrium setting and shows that such policies may have unanticipated effects. It is shown that in a world with capital mobility, the GSP could result in capital outflows rather than inflows and consumer preferences for shade grown coffee end up hurting labor in developing countries. Even small subsidies that are contingent on the use of domestic intermediates can result in specialization in the targeted good. Value added contingent policies can easily lead to multiple equilibria despite the absence of externalities or market imperfections.

Suggested Citation

  • Kala Krishna, 2015. "Conditional Policies in General Equilibrium," Review of Development Economics, Wiley Blackwell, vol. 19(4), pages 797-819, November.
    • Handle: RePEc:bla:rdevec:v:19:y:2015:i:4:p:797-819
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    File URL: http://hdl.handle.net/10.1111/rode.12191
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    References listed on IDEAS

    as
    1. Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
    2. Kala Krishna & Motoshige Itoh, 1988. "Content Protection and Oligopolistic Interactions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(1), pages 107-125.
    3. Michael L. Mussa, 1984. "The Economics of Content Protection," NBER Working Papers 1457, National Bureau of Economic Research, Inc.
    4. Zingales, Luigi & Dyck, Alexander, 2002. "The Corporate Governance Role of the Media," CEPR Discussion Papers 3630, C.E.P.R. Discussion Papers.
    5. Eugene Beaulieu & James Gaisford, 2002. "Labour and Environmental Standards: The ‘Lemons Problem’ in International Trade Policy," The World Economy, Wiley Blackwell, vol. 25(1), pages 59-78, January.
    6. Martin Richardson, 2017. "Tariff Revenue Competition in a Free Trade Area," World Scientific Book Chapters, in: Dimensions of Trade Policy, chapter 8, pages 171-181, World Scientific Publishing Co. Pte. Ltd..
    7. Aaditya Mattoo & Harsha V. Singh, 1994. "Eco‐Labelling: Policy Considerations," Kyklos, Wiley Blackwell, vol. 47(1), pages 53-65, February.
    8. Kala Krishna & Anne Krueger, 1995. "Implementing Free Trade Areas: Rules of Origin and Hidden Protection," NBER Working Papers 4983, National Bureau of Economic Research, Inc.
    9. repec:bla:worlde:v:23:y:2000:i:04:p:561-576 is not listed on IDEAS
    10. Ju, Jiandong & Krishna, Kala, 2002. "Regulations, regime switches and non-monotonicity when non-compliance is an option: an application to content protection and preference," Economics Letters, Elsevier, vol. 77(3), pages 315-321, November.
    11. McCulloch, Rachel & Johnson, Harry G, 1973. "A Note on Proportionally Distributed Quotas," American Economic Review, American Economic Association, vol. 63(4), pages 726-732, September.
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    Cited by:

    1. Kala Krishna, 2005. "Understanding Rules of Origin," NBER Working Papers 11150, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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