IDEAS home Printed from https://ideas.repec.org/a/oup/wbecrv/v4y1990i2p175-93.html
   My bibliography  Save this article

Second-Best Foreign Exchange Policy in the Presence of Domestic Price Controls and Export Subsidies

Author

Listed:
  • Tarr, David G

Abstract

Poland, like many developing countries, has required its exporters to surrender a share of their foreign exchange earnings to the government at an overvalued exchange rate. During the late 1980s, it progressively increased the share which exporters were allowed to retain (the retention ratio), but other distortions to the trade regime remained. A model developed here estimates the effects of these policies on welfare under different foreign exchange elasticities, export and import subsidies, official exchange rates, and policies on exporter retention of foreign exchange earnings. The retention ratios in effect in early 1989 were equivalent to a 51 percent tax on exports or an import tariff of 130 percent. As economic theory would suggest, maximum social benefit would derive from removal of the full range of distortions. Full retention of foreign exchange by exporters in the absence of other distortions would provide social benefits equivalent to 8 percent of gross domestic product. But the net effect of the other policies together is a bias toward tradables, so that a policy of somewhat less than full retention of foreign exchange is optimal in this second-best world.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Tarr, David G, 1990. "Second-Best Foreign Exchange Policy in the Presence of Domestic Price Controls and Export Subsidies," World Bank Economic Review, World Bank Group, vol. 4(2), pages 175-193, May.
  • Handle: RePEc:oup:wbecrv:v:4:y:1990:i:2:p:175-93
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Djankov, Simeon & et al, 2003. "Who Owns the Media?," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 341-381, October.
    2. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    3. Sujata Visaria, 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 59-81, July.
    4. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
    5. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    6. Rafael Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    7. Estache, Antonio & Goicoechea, Ana, 2005. "A"research"database on infrastructure economic performance," Policy Research Working Paper Series 3643, The World Bank.
    8. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    9. Allen Berger & Iftekhar Hasan & Leora Klapper, 2004. "Further Evidence on the Link between Finance and Growth: An International Analysis of Community Banking and Economic Performance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(2), pages 169-202, April.
    10. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, vol. 57(1), pages 265-301, February.
    11. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    12. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    13. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    14. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    15. Meghana Ayyagari & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2008. "How Important Are Financing Constraints? The Role of Finance in the Business Environment," World Bank Economic Review, World Bank Group, vol. 22(3), pages 483-516, November.
    16. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2004. "Finance, inequality, and poverty: cross-country evidence," Policy Research Working Paper Series 3338, The World Bank.
    17. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
    18. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
    19. repec:elg:eebook:17119 is not listed on IDEAS
    20. Thorsten Beck & Asli Demirguc-Kunt, 2005. "Law and Firms' Access to Finance," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 211-252.
    21. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
    22. Thorsten Beck & Ross Levine, 2003. "Legal Institutions and Financial Development," NBER Working Papers 10126, National Bureau of Economic Research, Inc.
    23. Beck, Thorsten & Demirguc-Kunt, Asli & Martinez Peria, Maria Soledad, 2007. "Reaching out: Access to and use of banking services across countries," Journal of Financial Economics, Elsevier, vol. 85(1), pages 234-266, July.
    24. repec:hrv:faseco:30747188 is not listed on IDEAS
    25. Micco, Alejandro & Panizza, Ugo & Yanez, Monica, 2007. "Bank ownership and performance. Does politics matter?," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 219-241, January.
    26. Beck, Thorsten & de la Torre, Augusto, 2006. "The basic analytics of access to financial services," Policy Research Working Paper Series 4026, The World Bank.
    27. Atif Mian, 2006. "Distance Constraints: The Limits of Foreign Lending in Poor Economies," Journal of Finance, American Finance Association, vol. 61(3), pages 1465-1505, June.
    28. Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 415-432.
    29. Lopez, Humberto & Serven, Luis, 2006. "A normal relationship ? Poverty, growth, and inequality," Policy Research Working Paper Series 3814, The World Bank.
    30. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
    31. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    32. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    33. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
    34. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2006. "Entry regulation as a barrier to entrepreneurship," Journal of Financial Economics, Elsevier, vol. 82(3), pages 591-629, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michalopoulos, Constantine & Tarr, David, 1991. "Trade and payments arrangements in post-CMEA Eastern and Central Europe," Policy Research Working Paper Series 644, The World Bank.
    2. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Measuring distortions to agricultural incentives, revisited," World Trade Review, Cambridge University Press, vol. 7(04), pages 675-704, October.
    3. Tarr, David, 1991. "When does rent-seeking augment the benefits of price and trade reform on rationed commodities? : estimates for automobiles and color televisions in Poland," Policy Research Working Paper Series 741, The World Bank.
    4. Kym Anderson & Johan Swinnen, 2008. "Distortions to Agricultural Incentives in Europe's Transition Economies," World Bank Publications, The World Bank, number 6502.
    5. La Ferrara, Eliana & Castillo, Gabriel & Nash, John, 1994. "The reform of mechanisms for foreign exchange allocation : theory and lessons from sub-Saharan Africa," Policy Research Working Paper Series 1268, The World Bank.
    6. Howard J. Shatz & David G. Tarr, 2017. "Exchange Rate Overvaluation and Trade Protection: Lessons from Experience," World Scientific Book Chapters,in: Trade Policies for Development and Transition, chapter 5, pages 115-127 World Scientific Publishing Co. Pte. Ltd..

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:wbecrv:v:4:y:1990:i:2:p:175-93. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/wrldbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.