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Privatization In A Small Open Economy With Imperfect Competition

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  • Partha Sen

    (Department of Economics, Delhi School of Economics, Delhi, India)

  • Arghya Ghosh

    (University of New South Wales Sydney, NSW 2052 Australia)

Abstract

We look at privatization in a general equilibrium model of a small, tariff-distorted, open economy. There is a differentiated good produced by both private and public sector enterprises. A reduction in government production in order to cut losses from such production raises the returns to capital and increases the tariff revenue, which are welfare improving. However, privatization also leads to lower wages and possibly fewer private brands. This lowers workers’ welfare, which may make privatization politically infeasible. Privatization can improve workers’ welfare with complementary reforms, e.g., attracting foreign investment or trade liberalization.

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Bibliographic Info

Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 195.

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Length: 36 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:cde:cdewps:195

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Keywords: public sector enterprise; privatization; foreign investment; trade liberalization; monopolistic competition.;

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