Santiago Levy

Trade and Foreign Investment Policies Under Imperfect Competition: Lessons for Developing Countries

Abstract The 1980s saw the emergence of a large literature on the role of trade policy in market structures characterized by imperfect competition. This paper contributes to that literature by providing a unified treatment of the effects of trade and foreign investment policy under imperfect competition using a model easily accessible to non-specialists. We examine the circumstances under which trade and direct foreign investment (DFI) are immiserizing, and identify the appropriate forms of intervention by a welfare-maximizing government. Our positive analysis shows how depending on parameter values, monopoly or duopoly situations arise as equilibrium market structures, possibly involving DFI. Our normative analysis shows that while free trade and unrestricted DFI may be welfare-reducing, neither tariffs nor restrictions on DFI are first-best instruments to increase welfare. The paper concludes with an assessment of the lessons of the new literature for trade and DFI policy formulation in developing countries.

Labor markets, migration and welfare Agriculture in the North-American Free Trade Agreement

Abstract Mexico, like many other countries, provides its agricultural sector with substantial protection from international competition. Income distributional considerations and concerns about transitional problems once liberalization starts explain much of the persistence of such policies. This paper argues four points: (i) substantial efficiency gains can be expected from liberalization; (ii) the income distributional effects of protection are in fact regressive; (iii) well targeted adjustment programs that help rather than delay adjustment can be designed once a careful analysis of the precise distributional impact has been made; and (iv) a comprehensive, two-sided liberalization by Mexico and its main export market, the U.S., would significantly reduce any adjustment problems. The latter point is made in the context of an assessment of the potential impact of the Free Trade Agreement (FTA) on agriculture.

Strengthening preventive care programs: a permanent challenge for healthcare systems; lessons from PREVENIMSS México

BackgroundIn 2001, the Instituto Mexicano del Seguro Social (IMSS) carried out a major reorganization to provide comprehensive preventive care to reinforce primary care services through the PREVENIMSS program. This program divides the population into programmatic age groups that receive specific preventive services: children (0-9 years), adolescents (10-19 years), men (20-59 years), women (20-59 years) and older adults (> = 60 years). The objective of this paper is to describe the improvement of the PREVENIMSS program in terms of the increase of coverage of preventive actions and the identification of unmet needs of unsolved and emergent health problems.MethodsFrom 2003 to 2006, four nation-wide cross-sectional probabilistic population based surveys were conducted using a four stage sampling design. Thirty thousand households were visited in each survey. The number of IMSS members interviewed ranged from 79,797 respondents in 2003 to 117,036 respondents in 2006.ResultsThe four surveys showed a substantial increase in coverage indicators for each age group: children, completed schemes of vaccination (> 90%), iron supplementation (17.8% to 65.5%), newborn screening for metabolic disorders (60.3% to 81.6%). Adolescents, measles - rubella vaccine (52.4% to 71.4%), hepatitis vaccine (9.3% to 46.2%), use of condoms (17.9% to 59.9%). Women, measles-rubella vaccine (28.5% to 59-2%), cervical cancer screening (66.7% to 75%), breast cancer screening (> 2.1%). Men, type 2 diabetes screening (38.6% to 57.8%) hypertension screening (48-4% to 64.0%). Older adults, pneumococcal vaccine (13.2% to 24.9%), influenza vaccine (12.6% to 52.9) Regarding the unmet needs, the prevalence of anemia in children was 30% and a growing prevalence of overweight and obesity, type 2 diabetes, and hypertension was found in men, women and older adults.ConclusionPREVENIMSS showed an important increase in the coverage of preventive services and stressed the magnitude of the old and new challenges that this healthcare system faces. The unsolved problems such as anemia, and the emerging ones such as overweight, obesity, among others, point out the need to strength preventive care through designing and implementing innovative programs aimed to attain effective coverage for those conditions in which prevention obtains substandard results.

A short-run general equilibrium model for a small, open economy

Abstract This paper introduces some features observed in developing countries into a CGE model. In particular, quantitative restrictions on exports and imports are incorporated and quota-derived rents are included as a source of income. The economy is assumed to be small only on the import side, such that export prices are endogenous. A distinction between traded and treadeable goods is introduced, together with the possibility of ‘water in the tariff’. Thus, the law of one price need not hold. Another key feature is the modelling of supply with unutilized capacity. Thus, excess demands clear by price changes, output adjustments, or imports, depending on the degree of capacity utilization, the tradeability of the good, and the trade regime. An empirical application of the model shows that in a GE context, import quotas can worsen the trade balance while lowering real income and the real wage rate.

Foreign trade and its impact on employment: The Mexican case

Abstract This paper discusses the relationship between foreign trade and employment in a small open economy, and carries out some empirical work using Mexican data. It is argued that employment multipliers are not stable if intermediate inputs are imported. Actual employment multipliers will be given by the relationship between effective demand and installed capacity in each sector, and will depend strongly on whether quotas or tariffs are in operation. It is also found that Mexican exports are capital intensive relative to its imports.

Short run responses to foreign exchange crises

Abstract This paper constructs a short-run general equilibrium model for an LDC-type economy. Some key features are the possibility of excess capacity and the presence of quantitative restrictions on exports and imports. A rich variety of pricing possibilities for tradeable goods is allowed for, including “water in the tariff” as well as domestic prices exceeding world prices with binding import quotas. The model is used to analyze alternative responses to a foreign-exchange crisis. Import controls, devaluation and cuts in government expenditures are compared. We find that: i) import quotas can worsen the balance of trade, ii) rationing foreign exchange for noncompetitive imports is stagflationary, increasing prices even under excess capacity, iii) a devaluation has strong effects on income distribution, although output and employment expand, and iv) cuts in government spending are deflationary but the income distribution effects are neutral.

Export subsidies and the balance of trade

Abstract We analyze the relationship between export subsidies and the balance of trade in a semi-small LDC type economy – facing fixed world prices for imports but negatively sloped demand curves for exports. The paper examines the dual role of export subsidies: as a mechanism to increase the competitiveness of exports and thus reduce the trade deficit and as a net injection of government spending, which will enlarge the trade deficit. The key finding are: (i) export subsidies, by themselves, will reduce the trade deficit only if the export price elasticity is very high and domestic prices are constant, (ii) for a lower price elasticity and/or changing domestic prices – because, say, a sector is at full capacity – export subsidies will worsen the trade deficit, (iii) when, however, export subsidies are accompanied by a reduction of government spending equal to the cost of the subsidies the trade deficit will decrease, while at the same time real GNP will increase.

A mark-up pricing model for price simulations

Abstract This paper develops an input/output model of pricing using a mark-up pricing formula. The connection between mark-up pricing and competitive pricing is analyzed through the determination of sectoral equilibrium profit mark-up rates as a function of the profit rate and the capital intensity of each sector. The model is used to analyze the effects on relative prices and the aggregate price level of exogenous changes in the nominal wage rate, tax rates, the exchange rate and world prices. Exogenous changes in the prices of domestically produced commodities are modelled via the imposition of ad valorem tax rates, which yield a measure of the net effect of the exogenous changes. Simulations are carried out under passive price adjustment as well as adjustment with price ceilings. In this last instance the model calculates the endogenously determined reduction in profit mark-ups. Lastly, empirical results of various simulations are presented using data from the Mexican economy.

The short-term macroeconomic effects of price controls☆

Abstract A simple general equilibrium model is constructed to analyze the effects of price controls on income distribution, output, and the budget deficit. The economy is partitioned into private and public sectors. In the former sectors prices are competitively determined, while in the latter they are set exogenously by government decree. Furthermore, public sector prices might differ for producers and consumers. The analysis is conducted in the context of an open economy with a fixed exchange rate where foreign goods are imperfect substitutes for domestic goods in consumption. Thus, the spillover of price controls into the trade balance is incorporated into the model. The taxes/subsidies imposed on various groups by price controls are identified. An equilibrium is constructed for an economy producting 10 goods, of which 4 are affected by price controls. Simulations are performed to analyze the effects of an exchange rate devaluation on the main macroeconomic indicators.