State-Owned Enterprises, Shirking and Trade Liberalisation
32 Pages Posted: 6 Feb 2001
Date Written: June 2000
Abstract
We explore the implications of trade liberalization in economies with State Owned enterprises (SOEs) and shirking. SOEs are modelled as controlled by the members of the enterprise who determine output and effort levels, while facing output prices and wage rates set by government. Enterprise members must collectively meet a budget constraint that the value of sales equals the enterprise wage bill plus an exogenous enterprise commitment to the state budget. Labour can shirk either through low on the job effort (leisure), or through moonlighting to second jobs in the private sector. Three alternative formulations of equilibria in SOE economies are explored, and in these trade liberalization can produce effects opposite from conventional competitive models. In particular, the output of competing SOEs increases rather than falls, and negative effects on imports can also occur. These models when calibrated to 1995 data for Vietnam also suggest quantitatively much larger impacts from trade liberalization than is the case for comparable conventional competitive models. This is because departures from Pareto optimality in SOE economies can be large and trade liberalization acts to discipline shirking associated with these inefficiencies. The implication we draw from our analysis is that to evaluate policy initiatives, such as trade liberalization, in developing and transistion economies without explicitly recognizing the role that SOEs can play may be misleading. This is especially the case where SOEs account for a significant fraction of economic activity and shirking is involved.
Keywords: Shirking, state owned enterprises, trade liberalization
JEL Classification: F4, H1, H3, H7
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Economic Impacts of China's Accession to the World Trade Organization
-
The Impact of China on the Exports of Other Asian Countries
By Barry Eichengreen, Yeongseop Rhee, ...
-
The Nature and Distortions to Agricultural Incentives in China and Implications of WTO Accession
By Jikun Huang and Scott Rozelle
-
Was China the First Domino?: Assessing Links between China and the Rest of Emerging Asia
By John G. Fernald, Hali J. Edison, ...
-
Trade Liberalization in China's Accession to the World Trade Organization
-
China and Emerging Asia: Comrades or Competitors?
By John G. Fernald, Prakash Loungani, ...
-
The Us-China Bilateral Trade Balance: its Size and Determinants
By Robert C. Feenstra, Wen Hai, ...