Garry Pursell

Economies of scale, price discrimination and exporting

The purpose of this note is to consider optimum policy towards ah exporting industry subject to economies of scale where the export price covers marginal, but not average costs. The following questions are considered: (1) Should an industry be allowed to practice price discrimination against domestic customers if this is necessary for its survival? (2) Should an import tariff be provided if this is necessary to make survival through price discrimination possible? This latter question is raised by the popular argument from manufacturers the world over: “protect me from imports so that I can export”. (3) Is there a role for subsidies of some kind to the industry? The analysis extends earlier work by Corden ( 1967) and Basevi (1970)? We assume that the industry consists of a single firm (or a group of firms subject to economies of scale behaving like a single rfirm). The country cannot affect the import or thie export price of the product. Output changes cause no changes in the rents of factors othei than the r&nt of capital (so that al! changes in ‘producers’ surplus’ are changes in the pure profit of the firm) (see Mishan ( 1968)). The demand c’urve is income-compensated in the usual Hicksian matmer SC that changes in ‘consumers’ surplus’ r’nay be interpreted, e.g., as compensaGng varia-

TRADE POLICIES IN INDIA

Publisher Summary This chapter elaborates on the trade policies in India. At the time of independence in 1947 and up to the mid-1950s, controls on commodity exports were stringent and export taxes relatively high. With the worsening of the balance-of-payments situation from the mid-1950s onward, the controls were relaxed and many of the export taxes were abolished or reduced. New export taxes were imposed and existing taxes were increased along with the devaluation, the apparent purpose being to absorb some of the windfall gains to exporters and to exploit what was believed to be Indias monopoly power in the world markets for a number of these commodities. It was found that after 1966, the export taxes declined again both in relation to the particular commodities on which they were imposed and in relation to total exports owing to the declining share of commodities in total exports. The export taxes on exportable commodities during the period discouraged exports, but continuing export controls, the overvalued exchange rate, and other policies were probably more important deterrents.

Shadow Pricing in a Specific-factors Model: Comment

Recently in this journal Maneschi (1985) calculated shadow prices of factors for a small country that produces and consumes many goods, all of which are traded at fixed world prices and are produced using intersectorally mobile labour and a sector-specific capital stock. All factors are fixed in supply, and the distortions considered consist of fixed import tariffs and/or export subsidies, sector-specific wage differentials, and minimum wages. The work is closely related to that of Srinivasan and Bhagwati (1978), henceforth SB, who calculate shadow prices of factors for a country which produces two goods using two intersectorally mobile factors of production. The analysis is similar in that both papers calculate the shadow price of a factor of production as the fall in the value of the countrys output measured at world prices resulting from governmental withdrawal of a unit of the factor from the private sector for use in a hypothetical project. This is always legitimate in the SB model, because fixed import tariffs, fixed export subsidies, and fixed world prices serve to freeze all product and factor prices in the domestic economy, in the face of altered factor supplies to the private sector. This means that when the government withdraws a unit of a factor from the private sector to use in a project, each individuals utility and consumption bundle will be left unchanged, and the only cost to the government will be the increase in the rate at which its foreign exchange reserves are used up, which will just equal the change in the value of domestic output at world prices. Thus, in this case, the social cost or shadow price of a unit of the factor in foreign exchange numeraire is just the change in domestic output valued at world prices.

Unity in the Thought of Alfred Marshall

Introduction, 588. — I. The theory of value, 589. — II. Money, interest and fluctuations, 590. — III. Aspects of economic development, 594. — IV. Conclusion, 599.

How to Measure and Compare Export Incentives

The Indian Institute of Foreign Trade has been holding a series of Fortnightly Colloquia, Research Seminars, Book Review Sessions and National Seminars under the dynamic leadership of Dr. Sada Shankar Saxena, new Director General of the Institute. A new academic culture is thus taking root in the liFT on account of the regularity of the research seminars and the personal imprint of the Director General. The new thrust p~rcolates from the Director General down to every segment of liFT -Faculty, Participants, Guest Lecturers, visitors to the Foreign Trade Library-in fact, everyone who has something to do with the liFT; the new culture is thus highly infectious. An ex.ample is a research paper based on a Research Seminar held under the Chairmanship of Dr. Sada Shankar Saxena, the new DG, at the liFT campus on 28 October 1987. The discussion was initiated by the author of this research paper, Dr. Garry Pursell, Senior Economist, World Bank, who has done extensive research work on Indias industrial infrastructure. -Ed.