State-Owned Enterprises, Shirking and Trade Liberalisation

32 Pages Posted: 6 Feb 2001

See all articles by Madanmohan Ghosh

Madanmohan Ghosh

Department of Finance; delete

John Whalley

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for International Governance and Innovation (CIGI)

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

Ghosh, Madanmohan and Ghosh, Madanmohan and Whalley, John, State-Owned Enterprises, Shirking and Trade Liberalisation (June 2000). Available at SSRN: https://ssrn.com/abstract=258930 or http://dx.doi.org/10.2139/ssrn.258930

Madanmohan Ghosh

Department of Finance ( email )

140 O'Connor Street
Ottawa, OR Ontario K1A 0H5
Canada

delete

John Whalley (Contact Author)

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada
519-661-3509, ext. 83509 (Phone)
519-661-3666 (Fax)

HOME PAGE: http://www.ssc.uwo.ca/economics/faculty/

National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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Centre for International Governance and Innovation (CIGI) ( email )

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Canada