IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2750.html
   My bibliography  Save this paper

The political economy of commodity export policy : a case study of India

Author

Listed:
  • Kondo, Masanori

Abstract

Many developing country governments discriminate against sectors that export primary commodities. India, for example, discriminates against cotton production. Exports of cotton have been restricted by quotas, and the mill industry has been subject to such regulations as the obligation to supply hank yarn for Indian handlooms. These interventions have led to stagnating cotton yields, rent-seeking activities, manipulation of cotton statistics, and low profitability in cotton mills'offsetting the short-run benefits of inexpensive cotton in India. The author develops a numerical model to measure the impact of liberalizing cotton exports. This is the first simulation model of its type, and the first multimarket model that computes price elasticities endogenously, based on the ratios between product prices and input costs. The model distinguishes short-run from long-run effects by drawing on the principle that the cost of capital varies only in the long run. Results of the simulation under complete liberalization indicate heavy (16 percent) net losses in income in the handloom sector. The government subsidies needed to compensate for those losses amount to US$423 million, or about 25 percent more than current government revenue in India's cotton sector. Such costly subsidy of handlooms is undesirable not only budgetarily but also politically, becauseit creates new vested interests. The author proposes politically feasible programs for managing the adverse impact of liberalization on the handloom sector, including handloom conversion and involvement of mills in cotton cultivation. Governments tend to prefer an export quota to an export tax because it is easier to change a quota than a tax rate if market conditions change. But flexible controls actually facilitate rent-seeking activities. As quotas are changed more often than tax rates, more interest groups get involved in lobbying and in padding crop estimates. In other words, the political and economic problems that result from restrictions on commodity exports can be more serious than those relating to resource misallocation. It is important to consider how policy changes will affect the political power structure and the objectives of different interest groups.

Suggested Citation

  • Kondo, Masanori, 2001. "The political economy of commodity export policy : a case study of India," Policy Research Working Paper Series 2750, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2750
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2002/02/02/000094946_02011904015780/Rendered/PDF/multi0page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
    2. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    4. Helpman, Elhanan, 1995. "Politics and Trade Policy," Foerder Institute for Economic Research Working Papers 275606, Tel-Aviv University > Foerder Institute for Economic Research.
    5. Meghnad Desai, 1992. "Is There Life after Mahalanobis? The Political Economy of India's New Economic Policy," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 27, pages 155-164.
    6. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    7. Mazumdar, Dipak, 1991. "Import-substituting industrialization and protection of the small-scale: The Indian experience in the textile industry," World Development, Elsevier, vol. 19(9), pages 1197-1213, September.
    8. Bhagwati, Jagdish, 1993. "India in Transition: Freeing the Economy," OUP Catalogue, Oxford University Press, number 9780198288473.
    9. Corden, W. Max., 1997. "Trade Policy and Economic Welfare," OUP Catalogue, Oxford University Press, edition 2, number 9780198775348.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yasar, Mahmut, 2013. "Political Influence of Exporting and Import-Competing Firms: Evidence from Eastern European and Central Asian Countries," World Development, Elsevier, vol. 51(C), pages 154-168.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bin, Sheng, 2000. "The Political Economy of Trade Policy in China," Working Papers 10/2000, Copenhagen Business School, Department of Management, Politics & Philosophy.
    2. Yogesh Uppal, 2011. "Does legislative turnover adversely affect state expenditure policy? Evidence from Indian state elections," Public Choice, Springer, vol. 147(1), pages 189-207, April.
    3. James Lake & Maia Linask, 2016. "Domestic political competition and pro-cyclical import protection," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 564-591, August.
    4. Thorvaldur Gylfason, 2000. "Resources, Agriculture, and Economic Growth in Economies in Transition," Kyklos, Wiley Blackwell, vol. 53(4), pages 337-361, November.
    5. Echavarría, Juan José & Giraldo, Iader & Jaramillo, Fernando, 2019. "Cadenas globales de valor, crecimiento y protección arancelaria en Colombia," Working papers 9, Red Investigadores de Economía.
    6. Daniel Brou & Michele Ruta, 2013. "Rent-Seeking, Market Structure, and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(3), pages 878-901, July.
    7. Hwang, Jinyoung & Jung, Kun-Oh, 2002. "Initial asset inequality and tariff formation: a cross-country analysis," Economics Letters, Elsevier, vol. 76(3), pages 405-410, August.
    8. Wang, Jue-Shyan & Koo, Hui-wen & Chen, Tain-Jy, 2006. "Resource rivalry and endogenous lobby," Japan and the World Economy, Elsevier, vol. 18(4), pages 488-511, December.
    9. Júlio, Paulo, 2014. "The politics of growth: Can lobbying raise growth and welfare?," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 263-280.
    10. Mohammad Abdul Munim Joarder & Monir Uddin Ahmed, 2023. "Does natural resource abundance breed corruption? The role of political institutions," SN Business & Economics, Springer, vol. 3(9), pages 1-43, September.
    11. Tavares, José & Larrain B., Felipe, 2007. "Can Openness Deter Corruption? The Role of Foreign Direct Investment," CEPR Discussion Papers 6488, C.E.P.R. Discussion Papers.
    12. Goel, Rajeev K. & Korhonen, Iikka, 2011. "Exports and cross-national corruption: A disaggregated examination," Economic Systems, Elsevier, vol. 35(1), pages 109-124, March.
    13. Garfinkel, Michelle R. & Skaperdas, Stergios & Syropoulos, Constantinos, 2008. "Globalization and domestic conflict," Journal of International Economics, Elsevier, vol. 76(2), pages 296-308, December.
    14. repec:hhs:bofitp:2009_005 is not listed on IDEAS
    15. Goel, Rajeev K. & Korhonen, Iikka, 2011. "Exports and cross-national corruption: A disaggregated examination," Economic Systems, Elsevier, vol. 35(1), pages 109-124, March.
    16. Maggi, Giovanni, 2020. "Anti-lobbying gains from international agreements," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 20-34.
    17. Deepraj Mukherjee, 2018. "Corruption in International Business: Does Economic Globalization Help?," Global Business Review, International Management Institute, vol. 19(3), pages 623-634, June.
    18. Koichi Kagitani, 2008. "The Number Of Firms And The Politics Of Strategic Trade Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(1), pages 107-122, February.
    19. Felipe Larraín & José Tavares, 2004. "Does Foreign Direct Investment Decrease Corruption?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 41(123), pages 217-230.
    20. MENNA, Khaled, 2016. "الاقتصاد السياسي للإصلاحات في الدول الغنية بالموارد الطبيعية: دروس مستقاة من التجربة الجزائرية [The Political Economy of Reforms in Rich Natural Resources Countries: Lessons Driven from the Algeria," MPRA Paper 85385, University Library of Munich, Germany.
    21. James Lake & Maia Linask, 2015. "Costly distribution and the non-equivalence of tariffs and quotas," Public Choice, Springer, vol. 165(3), pages 211-238, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2750. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.