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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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11283.

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Date of creation: May 2005
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Handle: RePEc:nbr:nberwo:11283

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  1. Alexander Dyck & Luigi Zingales, 2002. "The Corporate Governance Role of the Media," NBER Working Papers 9309, National Bureau of Economic Research, Inc.
  2. 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.
  3. McCulloch, Rachel & Johnson, Harry G, 1973. "A Note on Proportionally Distributed Quotas," American Economic Review, American Economic Association, vol. 63(4), pages 726-32, September.
  4. Richardson, Martin, 1995. "Tariff revenue competition in a free trade area," European Economic Review, Elsevier, vol. 39(7), pages 1429-1437, August.
  5. Jiandong Ju & Kala Krishna, 1998. "Firm Behavior and Market Access in a Free Trade Area with Rules of Origin," NBER Working Papers 6857, National Bureau of Economic Research, Inc.
  6. Michael L. Mussa, 1984. "The Economics of Content Protection," NBER Working Papers 1457, National Bureau of Economic Research, Inc.
  7. Kala Krishna & Motoshige Itoh, 1988. "Content Protection and Oligopolistic Interactions," NBER Working Papers 1843, National Bureau of Economic Research, Inc.
  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.
  9. 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, 01.
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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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