Privatization in a Small Open Economy with Imperfect Competition

34 Pages Posted: 8 Jan 2009

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Partha Sen

University of Delhi - School of Economics; National Bureau of Economic Research (NBER)

Date Written: October 31, 2008

Abstract

We look at privatization in a general equilibrium model of a small, tariff-distorted, open economy. There is a differentiated good produced by both private and public sector enterprises. A reduction in government production in order to cut losses from such production raises the returns to capital and increases the tariff revenue, which are welfare improving. However, privatization also leads to lower wages and possibly fewer private brands. This lowers workers' welfare, which may make privatization politically infeasible. Privatization can improve workers' welfare with complementary reforms, e.g., attracting foreign investment or trade liberalization.

Keywords: public sector enterprise, privatization, foreign investment, trade liberalization, monopolistic competition

JEL Classification: H41, F12, L32

Suggested Citation

Ghosh, Arghya and Sen, Partha, Privatization in a Small Open Economy with Imperfect Competition (October 31, 2008). UNSW Australian School of Business Research Paper No. 2008 ECON 21, Available at SSRN: https://ssrn.com/abstract=1323700 or http://dx.doi.org/10.2139/ssrn.1323700

Arghya Ghosh (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Partha Sen

University of Delhi - School of Economics ( email )

110007 Delhi
India
+91 11 725 7159 (Phone)
+91 11 725 7159 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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