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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

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    1. Michael L. Mussa, 1984. "The Economics of Content Protection," NBER Working Papers 1457, National Bureau of Economic Research, Inc.
    2. Aaditya Mattoo & Harsha V. Singh, 1994. "Eco‐Labelling: Policy Considerations," Kyklos, Wiley Blackwell, vol. 47(1), pages 53-65, February.
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    8. 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.
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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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