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Public firms' merger, employment, and welfare in developing countries: A general equilibrium analysis

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  • Chi†Chur Chao
  • Mong Shan Ee
  • Leonard F. S. Wang

Abstract

This paper examines the effect of a merger of state†owned firms on wage gap, employment, and social welfare in a general equilibrium setting. For a developing economy with state†owned firms in the urban sector, a merger via a reduction in the number of the urban state†owned firms can reduce the cost of capital. It then lowers the skilled wage rate through the factor†substitution effect, while it raises the unskilled wage by the inflow of capital to the rural sector and hence lowers urban unemployment. In addition, the reduction in the number of the urban state†owned firms can yield a scale effect to the firms. The beneficial effects on higher urban output and less urban unemployment can improve social welfare of the developing economy.

Suggested Citation

  • Chi†Chur Chao & Mong Shan Ee & Leonard F. S. Wang, 2018. "Public firms' merger, employment, and welfare in developing countries: A general equilibrium analysis," Review of Development Economics, Wiley Blackwell, vol. 22(2), pages 727-735, May.
    • Handle: RePEc:bla:rdevec:v:22:y:2018:i:2:p:727-735
    DOI: 10.1111/rode.12364
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    Cited by:

    1. Junlong Chen & Chaoqun Sun & Ruiyu He & Yibing Zhang & Jiali Liu, 2023. "Optimal nationalization policy in a heterogeneous mixed oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 807-827, March.
    2. Bárcena-Ruiz, Juan Carlos & Garzón, María Begoña, 2020. "Mergers between local public firms," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    3. Jiancai Pi & Shuning Li, 2022. "Managerial Delegation and Wage Inequality," Annals of Economics and Finance, Society for AEF, vol. 23(1), pages 141-157, May.

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