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Privatization in a Small Open Economy with Imperfect Competition

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  • Arghya Ghosh

    ()
    (School of Economics, The University of New South Wales)

  • Partha Sen

    ()
    (Delhi School of Economics)

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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File URL: http://wwwdocs.fce.unsw.edu.au/economics/Research/WorkingPapers/2008_21.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2008-21.

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Length: 34 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:swe:wpaper:2008-21

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

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