Working Paper: NBER ID: w11283
Authors: Kala Krishna
Abstract: 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.
Keywords: No keywords provided
JEL Codes: F13; F15; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Implementation of rules of origin (ROOs) in FTAs (F13) | Capital outflows (F32) |
| Capital outflows (F32) | Contraction in overall economy (E32) |
| Implementation of rules of origin (ROOs) in FTAs (F13) | Expansion in affected sector (F69) |
| Consumer preferences for shade-grown coffee (D11) | Negative impact on labor in developing countries (F66) |
| Small subsidies contingent on domestic intermediate use (H29) | Specialization in targeted good (F12) |
| Value-added contingent policies (G52) | Induction of multiple equilibria (D59) |