Trade Balance Constraints and Optimal Regulation
AbstractWe 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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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0504004.
Length: 35 pages
Date of creation: 06 Apr 2005
Date of revision:
Note: Type of Document - pdf; pages: 35
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Optimal regulation; Credit constraints; International trade;
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
- NEP-IFN-2005-04-16 (International Finance)
- NEP-REG-2005-04-16 (Regulation)
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