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Sequencing and Welfare: Labor Markets and Agriculture

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  • Sebastian Edwards

Abstract

Recent discussions on structural adjustment and market-oriented reforms in developing and Eastern European nations have addressed the issue of the appropriate sequencing of these reforms. Most of the traditional work on the subject has concluded that the preferred sequencing should include, as a first step, the opening up of the trade account. This "trade account first" literature, however, has been mostly macroeconomics in nature, without explicitly exploring the microeconomics and welfare consequences of alternative sequencing strategies. In this paper I develop a formal intertemporal model to investigate the welfare effects of different reform sequences. More specifically, I analyze whether the "trade account first" recommendation can be backed theoretically by welfare considerations. The analysis focuses on the role of labor market distortions and of the agricultural sector. I find that there are very weak welfare-based arguments in favor of the "trade account first" sequencing. The analysis also suggests that an early reform of the labor market will generally be welfare improving.

Suggested Citation

  • Sebastian Edwards, 1992. "Sequencing and Welfare: Labor Markets and Agriculture," NBER Working Papers 4095, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4095
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    References listed on IDEAS

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    1. Lindbeck, A. & Snower, D.J., 1990. "Segmented Labour Markets and Unemployment," Papers 483, Stockholm - International Economic Studies.
    2. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    3. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
    4. McKinnon, Ronald I., 1982. "The order of economic liberalization: Lessons from Chile and Argentina," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 17(1), pages 159-186, January.
    5. Sebastian Edwards & Sweder Van Wijnbergen, 1983. "The Welfare Effects of Trade and Capital Market Liberalization: Consequences of Different Sequencing Scenarios," UCLA Economics Working Papers 313, UCLA Department of Economics.
    6. Lars E. O. Svensson, 1984. "Oil Prices, Welfare, and the Trade Balance," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 649-672.
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    Cited by:

    1. Cesar Martinelli & Mariano Tommasi, 1993. "Sequencing of Economic Reforms in the Presence of Political Constraints," UCLA Economics Working Papers 701, UCLA Department of Economics.
    2. Cesar Martinelli, 2001. "Essays on Political Economy of Political Reform," Levine's Working Paper Archive 625018000000000135, David K. Levine.

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