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Reference Point Dependence for Specification Bias from Quality Upgrading

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  • Eric Hutton
  • John Whalley

Abstract

This paper argues that whether estimates of the welfare cost of natural or artificial trade barriers that do not discriminate by quality are subject to positive or negative specification bias when using models which do not explicitly recognize quality variation depends on the reference point used in counterfactual equilibrium analysis. We use numerical general equilibrium techniques to generate counter examples to the widely held view that (in the competitive case) incorporating quality upgrading will tend to reduce the welfare costs of quality invariant trade barriers. To do this, we use a trade-distorted equilibrium as the reference point, rather than free trade.

Suggested Citation

  • Eric Hutton & John Whalley, 1994. "Reference Point Dependence for Specification Bias from Quality Upgrading," NBER Working Papers 4816, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4816
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    1. Krishna, Kala, 1987. "Tariffs versus quotas with endogenous quality," Journal of International Economics, Elsevier, vol. 23(1-2), pages 97-112, August.
    2. Analysis, A Welfare & Das, Satya P. & Donnenfeld, Shabtai, 1987. "Trade policy and its impact on quality of imports," Journal of International Economics, Elsevier, vol. 23(1-2), pages 77-95, August.
    3. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550.
    4. Trela, Irene & Whalley, John, 1990. "Global Effects of Developed Country Trade Restrictions on Textiles and Apparel," Economic Journal, Royal Economic Society, vol. 100(403), pages 1190-1205, December.
    5. 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 439-449, August.
    6. Falvey, Rodney E, 1979. "The Composition of Trade within Import-restricted Product Categories," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1105-1114, October.
    7. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-178, Summer.
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