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State owned enterprises, shirking and trade liberalization

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  • Ghosh, Madanmohan
  • Whalley, John

Abstract

We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise members must collectively meet a budget constraint that the value of sales equals the enterprise wage bill plus an exogenous enterprise commitment to the state budget. Labour can shirk either through low on the job effort (leisure), or through moonlighting to second jobs in the private sector. Three alternative formulations of equilibria in SOE economies are explored, and in these trade liberalization can produce effects opposite from conventional competitive models. In particular, the output of competing SOEs increases rather than falls, and negative effects on imports can also occur. These models when calibrated to 1995 data for Vietnam also suggest quantitatively much larger impacts from trade liberalization than is the case for comparable conventional competitive models. This is because departures from Pareto optimality in SOE economies can be large and trade liberalization acts to discipline shirking associated with these inefficiencies. The implication we draw from our analysis is that to evaluate policy initiatives, such as trade liberalization, in developing and transistion economies without explicitly recognizing the role that SOEs can play may be misleading. This is especially the case where SOEs account for a significant fraction of economic activity and shirking is involved.
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Suggested Citation

  • Ghosh, Madanmohan & Whalley, John, 2008. "State owned enterprises, shirking and trade liberalization," Economic Modelling, Elsevier, vol. 25(6), pages 1206-1215, November.
  • Handle: RePEc:eee:ecmode:v:25:y:2008:i:6:p:1206-1215
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    Cited by:

    1. Henrik Barslund Fosse & Pascalis Raimondos‐Møller, 2012. "Reducing Tariffs According to WTO Accession Rules: The Case of Vietnam," Review of Development Economics, Wiley Blackwell, vol. 16(2), pages 331-341, May.
    2. John Whalley & Shunming Zhang, 2011. "State-Owned Enterprise Behavioural Responses To Trade Reforms: Some Analytics And Numerical Simulation Results Using Chinese Data," World Scientific Book Chapters,in: China's Integration Into The World Economy, chapter 13, pages 361-389 World Scientific Publishing Co. Pte. Ltd..
    3. Claustre Bajona & Tianshu Chu, 2010. "Reforming State Owned Enterprises in China: Effects of WTO Accession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 800-823, October.
    4. Waspodo Tjipto Subroto, 2015. "Revitalization of Pancasila Economic System in the Globalization Era," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 860-868.

    More about this item

    Keywords

    F4 H1 H3 H7 Shirking State owned enterprises Trade liberalization;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H1 - Public Economics - - Structure and Scope of Government

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