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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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4816.

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Date of creation: Aug 1994
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Publication status: Published as "Reference Point Dependence and Specification Bias", EL, Vol. 55, no. 1 (August 1997): 75-83.
Handle: RePEc:nbr:nberwo:4816

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  1. 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.
  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. Krishna, Kala, 1987. "Tariffs versus quotas with endogenous quality," Journal of International Economics, Elsevier, vol. 23(1-2), pages 97-112, August.
  4. Trela, Irene & Whalley, John, 1990. "Global Effects of Developed Country Trade Restrictions on Textiles and Apparel," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(403), pages 1190-1205, December.
  5. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-178, Summer.
  6. 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.
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