Trade Balance Constraints and Optimal Regulation

Lucía Quesada () and Omar Chisari
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Omar Chisari: Universidad Argentina de la Empresa

Industrial Organization from EconWPA

Abstract: We investigate the interactions between optimal regulation and external credit constraints. When part of a regulated ¯rm is owned by foreign investors, a credit-constrained country who wants to send pro¯ts abroad has to generate enough surplus in the trade account in order to compensate capital out°ows. We show that the credit constraint translates into a constraint of maximum profits for the regulated firm. Overall e±ciency in the regulated sector is reduced to maintain incentive compatibility. A flexible exchange rate helps relaxing the credit constraint. E±ciency is higher than with a fixed exchange rate, but still lower than without credit constraints.

Keywords: Optimal regulation; Credit constraints; International trade (search for similar items in EconPapers)
JEL-codes: D82 F32 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-int and nep-reg
Date: 2005-04-06
Note: Type of Document - pdf; pages: 35
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0504004

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