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Policy Reform and Aid Effectiveness in Africa

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  • Mina Baliamoune

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Abstract

We present a model of vertical product differentiation and exit where a domestic and a foreign firm face fixed setup costs and quality-dependent costs of production and compete in quality and price in the domestic market. Quality-dependent costs are quadratic in qualities, but independent of the quantities produced. The domestic government may impose a minimum quality standard binding for both foreign and domestic firms. In the presence of an initial cost advantage of the domestic firm, a sufficiently high minimum quality standard set by the domestic government will enable the domestic firm to induce exit of the foreign firm, i.e. to engage in predation. However, the same standard would lead to predation by the foreign firm, if the foreign firm had the initial cost advantage!

Suggested Citation

  • Mina Baliamoune, 2009. "Policy Reform and Aid Effectiveness in Africa," ICER Working Papers 19-2009, ICER - International Centre for Economic Research.
  • Handle: RePEc:icr:wpicer:19-2009
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    References listed on IDEAS

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    1. Martens,Bertin & Mummert,Uwe & Murrell,Peter & Seabright,Paul, 2008. "The Institutional Economics of Foreign Aid," Cambridge Books, Cambridge University Press, number 9780521055390.
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    1. repec:wsi:jicepx:v:03:y:2012:i:01:n:s1793993312400030 is not listed on IDEAS
    2. Mina Baliamoune-Lutz, 2012. "Do Institutions And Social Cohesion Enhance The Effectiveness Of Aid? New Evidence From Africa," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-19.

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