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

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Author Info
James Harrigan
Geoffrey Barrows

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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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Handle: RePEc:nbr:nberwo:12579

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Find related papers by JEL classification:
F1 - International Economics - - Trade
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Feenstra, Robert C, 1988. "Quality Change under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 131-46, February. [Downloadable!] (restricted)
  2. David Hummels and Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
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  3. 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, vol. 101(1), pages 138-60, February. [Downloadable!] (restricted)
  4. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May. [Downloadable!] (restricted)
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  5. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 541-585, May. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
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  1. Irene Brambilla & Amit Khandelwal & Peter Schott, 2007. "China's Experience Under the Multifiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC)," NBER Working Papers 13346, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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