Eden S. H. Yu

Partial Privatization, Foreign Competition, and Optimum Tariff

Using a simple international mixed oligopoly model with one public and one or more foreign firms, this paper examines the effect of partial privatization or foreign competition on optimum tariffs and finds that foreign competition lowers the optimal tariff rate but partial privatization raises it. This result implies that trade liberalization is welfare improving if a country opens up its economy by allowing foreign competition. However, the liberalization policy is not desirable when the country only partially or completely privatizes its publicly-owned enterprises.

Tourism, Dutch Disease And Welfare In An Open Dynamic Economy

This paper examines the effects of an expansion in tourism on capital accumulation, sectoral output and resident welfare in an open economy with an externality in the traded good sector. An expansion of tourism increases the relative price of the nontraded good, improves the tertiary terms of trade and hence yields a gain in revenue. However, this increase in the relative price of nontraded goods results in a lowering of the demand for capital used in the traded sector. The subsequent de-industrialization in the traded good sector may lower resident welfare. This result is supported by numerical simulations.

Content protection, urban unemployment and welfare

A three-sector general equilibrium model is developed to examine the resource allocation and welfare effects of domestic content protection. An increase in domestic content requirements lowers the urban unemployment ratio, the production of the domestic intermediate good, the import of the foreign intermediate good, and the national welfare.

Gains from Trade under Variable Returns to Scale

Recently, several trade theorists have investigated the welfare consequences of international trade under variable returns to scale. For example, Kemp and Negishi [11], using the revealed preference arguments, obtain the sufficient conditions under which the opening of trade and an improvement in the terms of trade are nonharmful in the presence of variable returns to scale, production subsidies and consumption taxes. Eaton and Panagariya [7] reexamine these issues in the context of Pareto welfare criterion. It is noteworthy that the assumption of constant returns to scale is retained in their discussions on production subsidies and consumption taxes.1 The purpose of this paper is to explore the welfare implications of tariffs and consumption taxes as well as the welfare rankings of these policy instruments under variable returns to scale. We obtain several interesting results. For example, social welfare for a small country can be maximized by introducing, in addition to free trade, a policy of production tax-cum-subsidy such that the output of the industry exhibiting greater (smaller) returns to scale is pushed to the maximum (minimum). A higher tariff rate needs not result in a lower welfare, whereas a higher rate of consumption tax necessarily leads to a lower welfare. Furthermore, a tariff may be superior to an equivalent consumption tax. The paper evolves as follows. The model and assumptions are presented in Section II. Section III is the analysis regarding non-optimality of free trade, free trade versus no trade,

Immigration and Welfare for the Host Economy with Imperfect Competition

In the literature, the beneficial result of immigration to the host country relies on the assumption of perfect competition in the goods market. However, for an economy characterized by imperfect competition, immigration of unskilled workers can be welfare-reducing. The entry of skilled workers is nevertheless welfare-enhancing under a plausible factor-intensity condition.

Technical Progress, Terms of Trade and Welfare under Variable Returns to Scale

The implications of variable returns to scale (VRS) have been extensively studied by trade theorists (e.g. Batra, 1968; Jones, 1968; Kemp and Negishi, 1970; and Eaton and Panagariya, 1979). It is, however, notable that virtually no efforts have been made to examine the welfare implications of growth for an open economy in the presence of VRS. The only exception is a recent study by Eaton and Panagariya (1982). They derived sufficient conditions for growth, rising either from factor accumulation or technical progress, to improve the welfare of a small country characterized by VRS.1 The purpose of this paper is to analyse the welfare implications of economic growth, identified specifically with Hicks-neutral technical progress, for a small as well as a large country in the presence of VRS. We obtain several alternative sufficient conditions for growth to be welfare-increasing. In addition, the effects of growth on the terms of trade in the case of a large country, as well as the effect of technical progress in both countries on the terms of trade, are examined.

A DYNAMIC MODEL OF TOURISM, EMPLOYMENT AND WELFARE: THE CASE OF HONG KONG

The present paper uses a dynamic open-economy model with wage indexation to examine the impact of tourism on employment and welfare. Both short-run and long-run situations are analysed. It is well known that tourism converts non-traded goods into tradable goods. An increase in the demand for a non-traded good raises its relative price, which results in an expansion of the non-traded sector at the expense of the traded goods sector. This output shift raises labour employment in the short run. However, in the long run, the higher relative price leads to higher wages, resulting in a negative impact on labour employment. If the output effect is dominant, the expansion in tourism raises employment and welfare. However, under realistic conditions tourism may lower both labour employment and welfare due to rising costs. These results are demonstrated by simulating a dynamic model for the case of Hong Kong.

Immiserizing transfer under variable returns to scale

This paper examines the welfare consequences of a unilateral transfer for both the transfer-paying a nd the transfer-receiving country in which the production functions a re subject to variable returns to scale. The authors obtain the condi tions for the strong paradox, i.e., the welfare of the transfer-payin g country improves and that of the transfer-receiving country decline s in the standard two-country framework. The conditions for the weak paradox, i.e., both the transferor and transferee gain or lose simult aneously, and the normal results, i.e., the transferor loses and the transferee gains, are also derived.

Tourism, jobs, capital accumulation and the economy: A dynamic analysis

This paper examines the effects of tourism in a dynamic model of trade on unemployment, capital accumulation and resident welfare. A tourism boom improves the terms of trade, increases labor employment, but lowers capital accumulation. The reduction in the capital stock depends on the degree of factor intensity. When the traded sector is weakly capital intensive, the expansion of tourism improves welfare. However, when the traded sector is strongly capital intensive, the fall in capital can be a dominant factor in lowering national welfare. This dynamic immiserizing result of tourism on resident welfare is confirmed by simulations on German data.

International Capital Competition and Environmental Standards

This paper examines the welfare effects of capital taxation and environmental standards with and without a government spending constraint or international tax credits. This analysis delineates the intricate linkages of the two policy measures to both private income and government welfare. Loosening environmental control leads to more capital tax revenue for the government. The optimal capital tax rate may be of any sign, depending upon the ranking of the weights of government objectives and private utility. The same criterion also applies in determining how stringent the optimal environmental standards should be.