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Trade Balance Constraints and Optimal Regulation

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Author Info
Lucia Quesada (University of Wisconsin Madison)
Omar Chisari (Universidad Argentina de la Empresa)

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Abstract

We investigate the interactions between optimal regulation and external credit constraints. When part of a regulated ¯rm is owned by foreign investors, a credit-constrained country who wants to send pro¯ts abroad has to generate enough surplus in the trade account in order to compensate capital out°ows. We show that the credit constraint translates into a constraint of maximum profits for the regulated firm. Overall e±ciency in the regulated sector is reduced to maintain incentive compatibility. A flexible exchange rate helps relaxing the credit constraint. E±ciency is higher than with a fixed exchange rate, but still lower than without credit constraints.

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File URL: http://129.3.20.41/eps/io/papers/0504/0504004.pdf
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Publisher Info
Paper provided by EconWPA in its series Industrial Organization with number 0504004.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 35 pages
Date of creation: 06 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0504004

Note: Type of Document - pdf; pages: 35
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Web page: http://129.3.20.41

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Related research
Keywords: Optimal regulation; Credit constraints; International trade;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. P. Krugman & L. Taylor, 1976. "Contractionary Effects of Devaluations," Working papers 191, Massachusetts Institute of Technology (MIT), Department of Economics.
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  2. Tracy R. Lewis & David E. M. Sappington, 2000. "Motivating Wealth-Constrained Actors," American Economic Review, American Economic Association, vol. 90(4), pages 944-960, September. [Downloadable!] (restricted)
  3. Laffont, Jean-Jacques & Matoussi, Mohamed Salah, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Review of Economic Studies, Blackwell Publishing, vol. 62(3), pages 381-99, July. [Downloadable!] (restricted)
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  4. Caillaud, Bernard & Jullien, B & Picard, P, 1995. "Competing Vertical Structures: Precommitment and Renegotiation," Econometrica, Econometric Society, vol. 63(3), pages 621-46, May. [Downloadable!] (restricted)
    Other versions:
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This page was last updated on 2009-12-9.

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