Piecemeal Reforms in a Transitional Economy

Elias Dinopoulos and Timothy D. Lane

Review of Development Economics, 1998, vol. 2, issue 3, 250-267

Abstract: Many transitional as well as developing economies have retained large elements of state ownership in some sectors. This paper analyzes the effects of piecemeal reforms in a small open economy in which the state enterprises’ employment and output decisions are the result of bargaining between the state treasury and enterprise “insiders.” Competition policy enhances welfare; privatization in a sector protected from foreign competition increases (lowers) welfare if state enterprises care more (less) for wage raises than for employment increases; and a small increase in the import quota has the usual welfare‐ambiguous effects. A free‐trade policy maximizes national welfare.

Date: 1998
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