Sajal Lahiri

Helping Minor Firms Reduces Welfare

The effect on national welfare of uneven technical progress and eli mination of a firm is analyzed under the existence of a Cournot oligopolistic sector. An increase in the share of an inefficient firm, owing to its innovations, results in a shift of production from more efficient firms to the inefficient firm, causing a less efficie nt allocation of production. It may decrease welfare even though the innovation itself is beneficial. Conversely, policies keeping ineffic ient firms from innovations or eliminating them may increase welfare, though they make the market structure more oligopolistic. Copyright 1988 by Royal Economic Society.

Will trade sanctions reduce child labour?: The role of credit markets

Abstract We examine the interaction between credit markets, trade sanctions and the incidence of child labour in a two-good, two-period model with unequally wealthy households. Both poverty and poor education quality, inter alia, are important determinants of child labour. The incidence of child labour decreases as we move from the case of borrowing constraints to the case in which poor households can borrow freely from rich ones and then to the case of perfect international credit markets. Trade sanctions can increase child labour, especially among poor households, a possibility that decreases as their access to credit improves.

Lobbying by Ethnic Groups and Aid Allocation

We develop a political-economic model of foreign aid allocation. Each ethnic group in the donor country lobbies the government to allocate more aid to its country of origin, and the government accepts political contributions from lobby groups. Initial per-capita income of the recipients and those of the ethnic groups are shown to be important determinants of the solution of the political equilibrium. We also examine the effects of changes in the degree of corruption, aid fatigue, and ethnic composition, in the donor country on the allocation of aid.

Foreign Direct Investment, Local Content Requirement, and Profit Taxation

We develop a partial equilibrium model of foreign direct investment (FDI) in which identical foreign firms locate themselves in a host country to compete in a segmented oligopolistic market for a homogeneous commodity.

Can Cross-border Pollution Reduce Pollution?

We develop a North-South model of foreign aid and cross-border pollution resulting from production activities in the recipient country. There is both private and public abatement of pollution, the latter being financed through emissions tax revenue and foreign aid. We characterise a Nash equilibrium where the donor country chooses the amount of aid, and the recipient chooses the fraction of aid allocated to pollution abatement and/or the emission tax rate. At this equilibrium, an increase in the donors perceived rate of cross-border pollution reduces net emission levels.

Foreign aid and illegal immigration

Abstract We develop a two-country model of illegal immigration. We analyse the effect of foreign aid on illegal immigration, and consider both exogenous and endogenous income repatriation. In the former, an increase in aid increases illegal immigration if the total amount of aid is small. A transfer of resources from border control to aid increases illegal immigration when the total amount of aid is small. Under endogenous income repatriation, aid has no effect on illegal immigration when the preferences of the immigrants and their family members are the same. If the preferences are different, aid may increase illegal immigration.

Welfare effects of aid under quantitative trade restrictions

The paper examines the effects of tied-aid on the welfare of both the donor and the recipient countries. We depart from the previous literature by assuming preexistence of quantitative trade distortions. To mitigate these distortions the donor country provides aid that is tied to the rationed good. Conditions for the presence of the transfer paradox and of the enrichment of both countries are derived and interpreted under the stability of the system. Furthermore, we show that whereas untied aid cannot increase global welfare, tied-aid unambiguously does so.

The Role of Free Entry in an Oligopolistic Heckscher-Ohlin Model

Retaining the basic properties of the Heckscher-Ohlin trade model, namely, free entry and exit, fully integrated international commodity markets, and the same number of sectors with that of factors, the authors develop a two-country model with Cournot oligopoly. In this economy, factor price equalization and the standard Heckscher-Ohlin theorem on comparative advantage hold. Between two countries which are identical except for size, however, autarkic prices are different even though the level of trade is zero under the free-trade regime. Nevertheless, free trade reduces the oligopoly price and increases welfare. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

On the tying of aid to tariff reform

This paper considers the welfare effects of foreign aid that is tied to changes in the recipients tariff. By constructing a three-country model with tariffs, and by allowing for changes both in the amount of aid and in the tariff rates, we are able to consider the welfare implications of two different rules of aid conditionality: (i) a rule which leaves the donors welfare unchanged, and (ii) a rule which leaves the recipient governments total revenue unchanged. It is shown that the tying of aid to a tariff reform can, inter alia, be used to ensure Pareto improvement.

Trade and Industrial Policy under International Oligopoly

The existence of firms with different levels of efficiency within a country plays an important role in this in-depth analysis of industrial and trade policies in a multi-country trade-theoretic framework. Sajal Lahiri and Yoshiyasu Ono examine various industrial policies, R&D subsidies and trade policies under conditions of imperfect competition in a product market created by the presence of Cournot oligopolistic interdependence in production. Trade is defined broadly to include trade in commodity as well as trade in capital, specifically foreign direct investment. While the first part of the book focuses on commodity trade and assumes full employment, the latter considers foreign direct investment and assumes the presence of unemployment. Given the importance of industrial policies and the prevalence of imperfect competition, together with ongoing attention to theoretical issues concerning industrial economics, this research will excite interest amongst researchers, advanced students and policy makers in this field.