Jagdish N. Bhagwati

Directly Unproductive, Profit-seeking (DUP) Activities

This paper propses directly unproductive, profit-seeking (DUP) activities as a general concept that embraces a wide range of recently analyzed economic activities, including the subset of rent-seeking activities considered by Krueger. It then proceeds to provide a synthesis and generalization of the welfare-theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the DUP activity. Thus a unification and overview of the subject are achieved.

The Brain Drain, International Integration of Markets for Professionals and Unemployment: A Theoretical Analysis

Nearly the entire theoretical literature on the effects of the ‘brain drain’ from the less developed countries on their welfare has. been undert.aken in the framework of neoclassical models of the Hicks-Samuelson value-theoretic variety.’ While the analysts in this genre have greatly clarified certain issues such as the nature of the objective function to be specified, their analysis and prescriptions have been constrained by the theoretical model which the:y work with. The central result of their analysis, attributable to Grubel and Scott (1966), that brain drain prima facie should not be a cause for worry as the drained person will only take away the value of his marginal product which he himself earns anyway, can be rather obviously shown to be subject to the limitations that (i) for finite, rather than infinitestimal, shifts of labour, there woulld still be a loss to those left bel~ind;2 (ii) if the social marginal product exceeds the private marginal ‘product, thanks to strong externalities, as would seem to be the case with doctors and exceptionally gifted academics about whose emigration typically the underdeveloped countries seem to worry, then again there i.7 a loss to those left behind; 3

Why Are Services Cheaper in the Poor Countries

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Domestic Distortions, Tariffs and the Theory of Optimum Subsidy

T HERE is confusion of varying degrees in the current literature on trade theory concerning the desirable form of intervention in foreign trade when the economy is characterized by domestic distortions (divergences of the commodity price ratios from the corresponding marginal rates of substitution). For instance, the age-old debate over whether tariffs or subsidies should be used to protect an infant industry is still carried on in terms of the respective political and psychological merits of the two forms of protection while their relative economic advantages are assumed not to point in the direction of a definite choice.2 Three questions about the use of tariffs when domestic distortions exist need to be distinguished here. (1) Is a tariff necessarily superior to free trade (that is, can a tariff rate always be found that yields a welfare position not inferior to that produced by free trade)? (2) Is a tariff policy necessarily superior to any other form of trade policy? (3) If the choice can be made from the entire range of policy instruments, which is the optimal economic policy?

Outward-Orientation and Development: Are Revisionists Right?

The costs of import substitution (IS) as a strategy for industrialization, which was deemed synonymous with economic development by many development economists of the fifties and sixties, were shown to be substantial in the influential and nuanced studies of the seventies and eighties under the auspices of OECD, NBER and World Bank. These studies played a critical role in shifting policies in several developing countries away from the IS strategy. Recently there has been a proliferation of cross country regressions as a methodology of analysis of issues relating to growth, trade and other issues. Both proponents (e.g. Sachs and Warner (1995)) and opponents (Rodriguez and Rodrik (1999)) of the view that openness to trade is linked to higher growth have relied on such regressions. The paper systematically reviews the theoretical and empirical studies on such linkage. It rejects the cross-country regression methodology for reasons of their weak theoretical foundation, poor quality of their data base and their inappropriate econometric methodologies. It argues that the most compelling evidence on this issue can come only from careful case studies of policy regimes of individual entries such as those of OECD, NBER and World Bank. It concludes that the virtues of openness established in these nuanced in-depth studies remain unrefuted.

Revenue Seeking: A Generalization of the Theory of Tariffs

The theory of commercial policy has recently addressed three phenomena: (i) tariff (quota) seeking or lobbying by potential beneficiaries for the imposition of a tariff (quota), (ii) tariff (quota) evasion, and (iii) rent seeking or lobbying for getting an allocation of the import quota to earn the rents generated. Revenue seeking or lobbying to secure a share in the disposition of the tariff revenues is analyzed here. it is shown that revenue seeking may, even for a small country, result in a reduction in importable output. Furthermore, revenue seeking may be welfare improving. Rent seeking may be welfare improving as well.

India in transition : freeing the economy

Jagdish Bhagwati, one of the worlds leading economists, offers a fascinating overview of the policies that produced Indias sorry economic performance over a third of a century. His analysis puts into sharp focus the crippling effects of the inward-looking, bureaucratic regime that grew to Kafkaesque dimensions, starting in the early 1950s. It provides a coherent and convincing rationale for the economic reforms begun in June 1991 by the new government of Prime Minister Rao. These reforms, also discussed by Professor Bhagwati, are thus set into historical and analytical perspective. Written with wit and elegance, this text of the 1992 Radhakrishnan Lectures at Oxford has quickly gained a wide readership.

A Theoretical Analysis of Smuggling

I. Smuggling and welfare, 173. — II. Exogenously specified objectives: target increase in importable production, 184. — III. Overinvoicing and underinvoicing of transactions, 186. — IV. Conclusions, 187.

The Pure Theory of International Trade: A Survey

This chapter surveys that branch of international trade theory which, following Marshall, is generally described as “pure.” This epithet separates it from “monetary” theory. It is not to be taken to imply exceptional esotericism and abstraction from the problems of the real world. Indeed, I propose to give prominence to that part of the growing, new literature in pure theory which attempts explicitly to bring the theory on to the ground—through empirical verification of testable propositions, through measurement of the gains and losses from changes in trade policy and through the formulation of analytical and operational models to assist the developmental planning that is becoming a key characteristic of the developing nations.

Welfare-theoretical analyses of the brain drain

Abstract The paper reviews and synthesises the theoretical analyses of the brain drain in the earlier literature and in the present symposium in the Journal on the subject. Static analysis and dynamic analysis are distinguished, critical issues are raised relating to how welfare changes should be discussed in the context of migration, and possibilities of fruitful future research are outlined.