Conditional Policies in General Equilibrium

Kala Krishna ()

No 11283, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Obtaining lower generalized system of preferences (GSP) tariffs requires meeting costly Rules of Origin (ROOs). Growing coffee in the shade is more costly, but yields a price premium. This paper analyzes the effects of such restrictions in a general equilibrium setting and shows that such policies may have unanticipated effects. It is shown that in a world with capital mobility, the GSP could result in capital outflows rather than inflows and consumer preferences for shade grown coffee end up hurting labor in developing countries. Even small subsidies that are contingent on the use of domestic intermediates can result in specialization in the targeted good. Value added contingent policies can easily lead to multiple equilibria despite the absence of externalities or market imperfections.

JEL-codes: F13 F15 F16 (search for similar items in EconPapers)
Date: 2005-05
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

Published as Kala Krishna, 2015. "Conditional Policies in General Equilibrium," Review of Development Economics, Wiley Blackwell, vol. 19(4), pages 797-819, November.

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