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State owned enterprises, shirking and trade liberalization

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  • Ghosh, Madanmohan
  • Whalley, John

Abstract

We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise members must collectively meet a budget constraint that the value of sales equals the enterprise wage bill plus an exogenous enterprise commitment to the state budget. Labour can shirk either through low on the job effort (leisure), or through moonlighting to second jobs in the private sector. Three alternative formulations of equilibria in SOE economies are explored, and in these trade liberalization can produce effects opposite from conventional competitive models. In particular, the output of competing SOEs increases rather than falls, and negative effects on imports can also occur. These models when calibrated to 1995 data for Vietnam also suggest quantitatively much larger impacts from trade liberalization than is the case for comparable conventional competitive models. This is because departures from Pareto optimality in SOE economies can be large and trade liberalization acts to discipline shirking associated with these inefficiencies. The implication we draw from our analysis is that to evaluate policy initiatives, such as trade liberalization, in developing and transistion economies without explicitly recognizing the role that SOEs can play may be misleading. This is especially the case where SOEs account for a significant fraction of economic activity and shirking is involved.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 25 (2008)
Issue (Month): 6 (November)
Pages: 1206-1215

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Handle: RePEc:eee:ecmode:v:25:y:2008:i:6:p:1206-1215

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: F4 H1 H3 H7 Shirking State owned enterprises Trade liberalization;

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References

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  1. Bertero, Elisabetta & Rondi, Laura, 2000. "Financial pressure and the behaviour of public enterprises under soft and hard budget constraints: evidence from Italian panel data," Journal of Public Economics, Elsevier, Elsevier, vol. 75(1), pages 73-98, January.
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  3. John Piggott & John Whalley, 1994. "The Tax Unit and Household Production," NBER Working Papers 4820, National Bureau of Economic Research, Inc.
  4. Yingyi Qian & Gerard Roland, . "Federalism and the Soft Budget Constraint," Working Papers, Stanford University, Department of Economics 97045, Stanford University, Department of Economics.
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  7. Nguyen Chan & Madanmohan Ghosh & John Whalley, 1999. "Evaluating Tax Reform in Vietnam Using General Equilibrium Methods," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9906, University of Western Ontario, Department of Economics.
  8. James A. Schmitz, 1996. "The role played by public enterprises: how much does it differ across countries?," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-15.
  9. Boardman, Anthony E & Vining, Aidan R, 1989. "Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State-Owned Enterprises," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 32(1), pages 1-33, April.
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  11. David O’Connor, 1996. "Labour Market Aspects of State Enterprise Reform in Viet Nam," OECD Development Centre Working Papers 117, OECD Publishing.
  12. Mori, Pier Angelo, 1991. "The role of employers' authority when jobs are partially enforceable," Economics Letters, Elsevier, Elsevier, vol. 35(1), pages 89-93, January.
  13. Bai, Chong-En & Li, David D. & Tao, Zhigang & Wang, Yijiang, 2000. "A Multitask Theory of State Enterprise Reform," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 716-738, December.
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Cited by:
  1. Henrik Barslund Fosse & Pascalis Raimondos-Møller, 2011. "Reducing Tariffs according to WTO Accession Rules: The Case of Vietnam," CESifo Working Paper Series 3628, CESifo Group Munich.
  2. Claustra Bajona & Tianshu Chu, 2009. "Data Appendix to "Reforming the State-Owned Enterprises in China: Effects of WTO Accession"," Technical Appendices 06-12, Review of Economic Dynamics.
  3. John Whalley & Shunming Zhang, 2006. "State-Owned Enterprise Behaviour Responses to Trade Reforms: Some Analytics and Numerical Simulation Results Using Chinese Data," NBER Working Papers 12780, National Bureau of Economic Research, Inc.

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