Manmohan Agarwal

Effects of entry in a model of oligopoly with international trade

The effect of entry where an individual firm is an oligopolist in the domestic market and a perfect competitor in the international market is examined. While the domestic firm can export, the domestic market is protected from foreign competition. It is shown that because of the export market all oligopolistic firms which export have an equal share of the domestic market. Also the so-called Ruffin condition is sufficient but not necessary for stability. The Ruffin condition also ensures quasi-competitiveness in that entry leads to larger domestic sales by he industry and lower price. Furthermore, with entry, exports of an individual firm and of the industry increase. An expenditure function analysis shows that such an increase in exports improves welfare.

Entry liberalization and export performance: a theoretical analysis in a multi-market oligopoly model

This paper is an attempt to demonstrate how the entry (costless) of firms in an industry may have a dramatic effect on exports from an industry in a country. The results have tremendous implications for LDCs suffering from resource and BOP constraints but having reservoirs of cheap labor. The welfare effects of such entry liberalization policy (or subsidy) can be stated from the Bhagwati theorem that a reduction in an only (single) distortion is necessarily welfare improving by reducing monopoly or oligopoly distortions. However, we have shown that the entry liberalization policy is welfare superior to an equivalent subsidy policy where equivalent is defined in terms of the impact on exports. As a by product, we have also shown how one can integrate the oligopoly models of trade with the general oligopoly literature. The results on the limiting behaviour of an open economy oligopoly model extend the standard results in the oligopoly theory in a closed economy.

South-South Trade: Building Block or Bargaining Chip?

In this chapter we examine the two usually-mentioned rationales for encouraging SST: namely, to enlarge the size of markets and permit LDCs to take advantage of economies of scale, and to act as a bargaining chip in North-South negotiations. The chapter examines the argument that SST is not in the interest of LDCs as it will be trade diverting and will mainly help the inward-looking LDCs to export their capital-intensive products. Though free trade may be the first-best policy for developing countries (although even this is controversial), the chapter argues that the reality is that given the BOP problems which most LDCs face, they are more likely to try to develop their industries behind protectionist barriers rather than forgo industrialization since export-led industrialization may be difficult because of the developed countries’ protectionist policies. In these circumstances, SST may permit some specialization and exploitation of economies of scale to reduce inefficiency. Exploitation of economies of scale is particularly stressed in the newer theories of trade. Furthermore, it is argued in this chapter that the current extent of SST is not optimal since for historical reasons transport, credit and information links are between developing and developed countries. In addition, Northern monopolies often control trade in primary commodities reducing Southern gains from such trade. If SST became more competitive this source of welfare loss would be avoided.

Structural adjustment, governance, economic growth and social progress

Abstract This paper analyses the interconnection between social achievement, structural adjustment, governance and economic performance. It does this by developing indices to measure social progress, measured by achievement of the Millennium Development Goals, and structural adjustment, measured by achieving the goals specified in the Washington consensus. These indices are constructed using the technique pioneered by Nagar & Basu, which uses the information contained in the correlation among the different indicators. Governance is measured by an index developed by the World Bank, and economic performance by growth of per capital income. Economic growth is not correlated with social progress, structural adjustment or governance. However, structural adjustment is not inimical to social progress. Furthermore, while the governance index is not correlated with growth of per capita income it is very highly correlated with social progress.

Financial Crisis of 2008 and Shifting Economic Power

This article analyses shifts in economic power over the last five decades or so. While developing countries (DCs) and regions have increased their share of incremental world income and incremental world exports over this period, there is very little shift in the relative rankings according to size of GDP of the 25 largest economies in 2011. The economies of South Korea and Brazil have become relatively much larger; the other changes have been minor. The correlations between the ranks over the years are very large showing that there has been little change in the rankings. Also, the GDP and per capita GDP of other countries and regions have increased relative to the US but this increase has been slow, particularly after 1982. The GDP of most of the large DCs has increased relative to that of the US but far fewer have increased their relative per capita GDP suggesting slow rates of growth of productivity and limited structural change of shift in economic activity from low productivity to high productivity sectors. Aggregating 20 indicators to form an index of economic power, we find that there has been little change in the rankings according to this index. Further, measuring the distance of individual countries from the US on the basis of these indicators, we find that most countries have been converging on the US, but very slowly. There is no evidence that the 2008 financial crisis has resulted in a hastening of the decline of the US.

China, India and Russia

This article analyses prospects for cooperation among Russia, India and China (RIC) in international economic governance. Section I discusses how the membership of these countries in the different international economic institutions affects their potential for cooperation. Section II analyses their recent economic performance. Then, Section III seeks to understand their interests and to identify areas of cooperation among them to change the operation of the world economic system to satisfy their objectives. Section IV pulls together the main threads of the discussion.

Resurgent South Asia

This article analyses the performance of the South Asian economies in the context of the evolution of the world economy. Recent years have seen considerable liberalisation of trade and capital flows in practically all countries, particularly developing countries. Trade has, consequently, expanded and developing countries are relying more on private flows than on aid to finance their balance of payments deficits. The performance of most developing countries has suffered since the oil price rises in 1974–77. Asian countries are an exception to this as they have grown rapidly. Growth rates in South Asian countries, after lagging behind those in East Asia, now seem to be catching up. Savings and investment rates have been increasing, as also exports. India, among the South Asian countries, is most likely to maintain a rapid growth rate. Manufactured goods feature more prominently in its economic structure and exports, and manufactures tend to show more dynamism. Also, the rapid growth of exports of commercial services, which have been growing particularly rapidly in the world economy, augurs well for the future.

International Economic Management Concerns of China, India, Russia

The article examines the performance of the Chinese, Indian and Russian economies in the context of the world economy. The major features of the world economy has been (i) its slowing down for all regions except Asia since the oil price shocks of 1973–74, (ii) the increasing integration of the different economies as barriers to trade have been reduced, and (iii) increasing importance of private capital flows. While the Russian economy, or that of the erstwhile Soviet Union, was not affected by the oil price shocks other economies apart from the Asian economies were. A major aspect of this effect is the decreasing productivity of capital. An important challenge is how the international economic system can be managed to return the world economy to higher rates of growth. In particular, how can growth rates in the developing world be raised? Trade liberalization must assist in this endeavor. Furthermore, increasing private capital flows have created the potential for destabilizing capital movements. It has been recognized that changes must be made in the international financial system. In this article we examine the interests of China, India and Russia in the international economic system.

Introduction: Conference on governance

In February 2006, Jawaharlal Nehru University organized a conference to discuss the traditional issues relating to governance, as well as those that have become increasingly important over the years in discourses pertaining to governance. The papers presented in the three-day conference reflected concerns relating to both sets of issues. There was consensus among the participants that governance issues needed to be analysed in a broader framework than has been the case hitherto. In particular, it was felt that while it was important to analyse the implications of having different kinds of institutions of governance, it was equally important to consider ways in which the preferences and values of individuals could impact on the institutions of governance; and that a unified approach to governance issues was called for. The eight papers included here for this special issue, a subset of those presented at the conference, deal with a variety of governance issues. Dasgupta and Shimomura in their paper study the impact of free trade on employment and GDP growth in a small developing economy in the absence as well as presence of foreign direct investment. Their results indicate that free trade with or without a corresponding free inflow of foreign capital into the manufacturing sector has a positive impact on employment and GDP growth. Chakraborty’s paper provides an alternative theorization on brain drain. The crucial role of repatriated earnings of emigrants, that can potentially help higher absorption of skill and sustain a higher level of skill differentiation in the domestic economy, is emphasized. Subramanian’s paper takes stock of certain difficulties associated with conventional social choice theoretic formulations of the notion of individual liberty; and advances an alternative formulation in the spirit of an ‘outcomeoriented’ version of Nozick’s approach to individual liberty as the freedom to fix certain personal features of the world. J. Int. Trade & Economic Development Vol. 15, No. 3, 255 – 256, September 2006

Issues of Coherence in World Trading System

An important aspect of international economic governance relates to the demand for coherence among international economic organizations. While there is coherence in the philosophy of the three main international economic organizations as they champion market processes, there is no coherence in short-run economic management or in fostering growth. A framework for growth would be particularly important for developing countries. That developing countries could prevent agreements which were against their interest for a long time, except during the Uruguay Round, was compounded by the fact that those countries could not help further their growth. The Uruguay Round agreements broke away from previous negotiations and included liberalization of trade in agriculture and textiles, sectors of interest to developing countries. The agreements also covered services and trade related intellectual property rights, and ex-tended to issues earlier considered domestic matters such as trade related investment measures. Rules regarding contingent protection and dispute settlement were made more transparent and conclusive. However, exports from developing countries continue to face substantial tariff and non-tariff non-border barriers in markets of the developed countries. The question of forming coalitions to help them achieve their objectives is fraught with many problems. Neither bloc style negotiating where all the developing countries act as a block or issue based coalitions of a mix of developed and developing countries have served their interest. As a result developing countries are still unable to get results that would help them achieve their goal of rapid growth.