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Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifibre Arrangement

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  • James Harrigan
  • Geoffrey Barrows

Abstract

Quota restrictions on United States imports of apparel and textiles under the multifibre arrangement (MFA) ended abruptly in January 2005. This change in policy was large, predetermined, and fully anticipated, making it an ideal natural experiment for testing the theory of trade policy. We focus on simple and robust theory predictions about the effects of binding quotas, and also compute nonparametric estimates of the cost of the MFA. We find that prices of quota constrained categories from China fell by 38% in 2005, while prices in unconstrained categories from China and from other countries changed little. We also find substantial quality downgrading in imports from China in previously constrained categories, as predicted by theory. The annual cost of the MFA to U.S. consumers was about $90 per household.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12579.

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Date of creation: Oct 2006
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Publication status: published as James Harrigan & Geoffrey Barrows, 2009. "Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifiber Arrangement," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 282-294, November.
Handle: RePEc:nbr:nberwo:12579

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  1. James E. Anderson, 1988. "The Relative Inefficiency of Quotas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511789, December.
  2. J. Michael Finger & Ann Harrison, 1996. "Import Protection for U.S. Textiles and Apparel: Viewed from the Domestic Perspective," NBER Chapters, in: The Political Economy of Trade Protection, pages 43-50 National Bureau of Economic Research, Inc.
  3. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  4. Carlos Alfredo Rodriguez, 1979. "The Quality of Imports and the Differential Welfare Effects of Tariffs, Quotas, and Quality Controls as Protective Devices," Canadian Journal of Economics, Canadian Economics Association, vol. 12(3), pages 439-49, August.
  5. Falvey, Rodney E, 1979. "The Composition of Trade within Import-restricted Product Categories," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages 1105-14, October.
  6. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," 2004 Meeting Papers 530, Society for Economic Dynamics.
  7. Feenstra, Robert C, 1988. "Quality Change under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(1), pages 131-46, February.
  8. Carolyn Evans & James Harrigan, 2005. "Tight Clothing. How the MFA Affects Asian Apparel Exports," NBER Chapters, in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 367-390 National Bureau of Economic Research, Inc.
  9. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
  10. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
  11. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(1), pages 138-60, February.
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Cited by:
  1. Irene Brambilla & Amit K. Khandelwal & Peter K. Schott, 2010. "China's Experience under the Multi-Fiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC)," NBER Chapters, in: China's Growing Role in World Trade, pages 345-387 National Bureau of Economic Research, Inc.
  2. Lawrence Edwards & Robert Lawrence, 2014. "AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions," NBER Chapters, in: African Successes: Modernization and Development National Bureau of Economic Research, Inc.
  3. Bown, Chad P. & McCulloch, Rachel, 2009. "U.S.-Japan and U.S.-China trade conflict : export growth, reciprocity, and the international trading system," Policy Research Working Paper Series 5102, The World Bank.
  4. Lawrence Edwards & Robert Z. Lawrence, 2010. "Do Developed and Developing Countries Compete Head to Head in High-tech?," NBER Working Papers 16105, National Bureau of Economic Research, Inc.
  5. Martin, Julien & Mejean, Isabelle, 2014. "Low-wage country competition and the quality content of high-wage country exports," Journal of International Economics, Elsevier, vol. 93(1), pages 140-152.
  6. Julien Martin & Isabelle Méjean, 2011. "Low-wage countries' competition, reallocation across firms and the quality content of exports," PSE - G-MOND WORKING PAPERS halshs-00962485, HAL.
  7. Pierre-Louis Vezina & Lorenzo Rotunno & Zheng Wang, 2012. "The rise and fall of (Chinese) African apparel exports," Economics Series Working Papers WPS/2012-12, University of Oxford, Department of Economics.
  8. Prema-chandra Athukorala & Raveen Ekanayake, 2014. "Repositioning in the Global Apparel Value Chain in the Post-MFA Era: Strategic Issues and Evidence from Sri Lanka," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2014-17, The Australian National University, Arndt-Corden Department of Economics.
  9. repec:nbr:nberwo:13346 is not listed on IDEAS

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