Political constraints and impatience as causes of the lack of

Political Constraints and Impatience as Causes of the Lack ...
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Political Constraints and Impatience as
Causes of the Lack of Competitiveness Vs. a
Credible Date of Openness as Successful
Temporary Protection.
*Aurora Gómez Galvarriato
**César L. Guerrero-Luchtenberg
115
2006
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postal 48-D, Toluca 50120, México.
*Centro de Investigación y Docencia Económicas (CIDE),Carretera México-Toluca 3655, Lomas de Santa Fé, (01210)
México D.F., México. Correo-e: aurora.gomez@cide.edu
**El Colegio Mexiquense, Ex hacienda Santa Cruz de los Patos, Zinacantepec 51350, México. Correo-e: cguerrero@cmq.edu.mx
Aurora Gómez Galvarriato y César L. Guerrero-Luchtenberg
Abstract. In this paper we present a model that describes how the
existence of a credible treat of liberalization may serve as an incentive
for domestic firms to adopt a new technology, but also it describes
how historical political constraints by themselves, or in combination
with a sufficient degree of impatience, may be the cause of bankruptcy
in some industries when a closed economy is opened to foreign
competition. The model assesses the behavior of two types of firms,
impatient and patient, which may or may not adopt foreign technology,
but the government only appears in the model as a passive player,
consistently with a credible date of openness. The costs involved are
not only economic but also political. These political costs are,
nonetheless, measured in monetary terms. At some moment, which
depends on the political constraints, a third firm enters the market,
the foreign one. Depending on the national firms´ degree of impatience
and the costs associated with political constraints, Nash equilibria, in
which one or even both firms –at the moment the economy is opened–
have to shut down, exist. All these strategies result to be subgame
perfect equilibrium. Further, as a by-product, our results shed new light
on the topic of temporary protection: The degree of impatience, by
itself, my be the reason of why temporary protection may or may not
fail to induce firms to adopt advanced technologies, even if the threat
of liberalization is credible. We make, also, a preliminary welfare study,
which suggests that some of the equilibria found may pass the
renegotiation proof criteria.
Key Words: Impatience; Bankruptcy; Political Constraints
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