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Quota Licenses for Imported Capital Equipment: Could Bureaucrats Ever DoBetter than the Market?

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  • Barbara J. Spencer

Abstract

Despite valid criticisms, many developing countries have issued non-transferable import licenses to a limited number of final-good producers so as to restrict imports of an input capital equipment. This paper demonstrates that for a given import quota, such licensing restrictions can actually increase domestic production of both the input and the final product, but at the cost of reduced quota rents. Under pure competition, domestic welfare falls relative to the use of marketable quota licenses, but if foreigners would get the quota rents, or if external economies cause decreasing costs, then bureaucratic allocation can dominate.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5695.

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Date of creation: Aug 1996
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Publication status: published as Journal of International Economics, Vol. 43, nos. 1 & 2 (August 1997): 1-29.
Handle: RePEc:nbr:nberwo:5695

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  1. Kala Krishna & Ling Hui Tan, 1996. "Transferable Licenses vs. Nontransferable Licenses: What is the Difference?," NBER Working Papers 5484, National Bureau of Economic Research, Inc.
  2. Jong-Wha Lee, 1994. "Capital Goods Imports and Long-Run Growth," NBER Working Papers 4725, National Bureau of Economic Research, Inc.
  3. Trela, Irene & Whalley, John, 1995. "Internal Quota-Allocation Schemes and the Costs of the MFA," Review of International Economics, Wiley Blackwell, vol. 3(3), pages 284-306, October.
  4. Anderson, James E., 1987. "Quotas as options: Optimality and quota license pricing under uncertainty," Journal of International Economics, Elsevier, vol. 23(1-2), pages 21-39, August.
  5. Bhagwati, Jagdish N & Ramaswami, V K & Srinivasan, T N, 1969. "Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy: Some Further Results," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 1005-10, Nov./Dec..
  6. Grossman, Gene M, 1981. "The Theory of Domestic Content Protection and Content Preference," The Quarterly Journal of Economics, MIT Press, vol. 96(4), pages 583-603, November.
  7. Krishna, Kala, 1990. "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," American Economic Review, American Economic Association, vol. 80(4), pages 828-36, September.
  8. Gopal J. Yadav, 1968. "A Note on the Equivalence of Tariffs and Quotas," Canadian Journal of Economics, Canadian Economics Association, vol. 1(1), pages 105-110, February.
  9. Dani Rodrik, 1994. "Getting Interventions Right: How South Korea and Taiwan Grew Rich," NBER Working Papers 4964, National Bureau of Economic Research, Inc.
  10. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-178, Summer.
  11. Vousden, Neil, 1987. "Content protection and tariffs under monopoly and competition," Journal of International Economics, Elsevier, vol. 23(3-4), pages 263-282, November.
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Cited by:
  1. Shumei Gao & Jihe Song, 2004. "Quota Use under VERs: A theoretical framework and some evidence on MFA quota use," Working Papers E03, Department of Economics, School of Management and Languages, Heriot Watt University.
  2. Eftichios Sartzetakis, 2004. "On the Efficiency of Competitive Markets for Emission Permits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(1), pages 1-19, January.
  3. Krishna Kala M & Tan Ling Hui & Ranjan Ram, 2004. "Quantity Controls, License Transferability, and the Level of Investment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-29, July.
  4. Boughner, Devry S. & de Gorter, Harry & Sheldon, Ian M., 2000. "The Economics Of Two-Tier Tariff-Rate Import Quotas In Agriculture," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 29(1), April.

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