TY  - JOUR
AU  - Krishna,Kala
TI  - Conditional Policies in General Equilibrium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11283
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11283
L1  - http://www.nber.org/papers/w11283.pdf
N1  - Author contact info:
Kala Krishna
Department of Economics
523 Kern Graduate Building
The Pennsylvania State University
University Park, PA 16802
Tel: 814/865-1106
Fax: 814/863-4775
E-Mail: kmk4@psu.edu
AB  - Obtaining lower generalized system of preferences (GSP) tariffs requires meeting costly Rules of Origin (ROOs). Growing coffee in the shade is more costly, but yields a price premium. This paper analyzes the effects of such restrictions in a general equilibrium setting and shows that such policies may have unanticipated effects. It is shown that in a world with capital mobility, the GSP could result in capital outflows rather than inflows and consumer preferences for shade grown coffee end up hurting labor in developing countries. Even small subsidies that are contingent on the use of domestic intermediates can result in specialization in the targeted good. Value added contingent policies can easily lead to multiple equilibria despite the absence of externalities or market imperfections.
ER  -