Most literature suggests that voluntary export restraints (VER) are not very harmful for the exporting country. This paper argues that this view is misconceived. Most work has focused on the welfare loss to the importing country arising from a loss of income transfer combined with a distortionary loss in efficiency. Implicit is the message that the often large rent transfer to the exporting country is likely to compensate for any induced inefficiency losses. This paper studies the effects on distribution and efficiency when VERs force factors out of industries in which they are most productive. It develops a general theoretical model that establishes qualitative conditions under which a VER will result in industry contraction, spillovers of exports to unrestricted markets, and losses in national welfare. It estimates key parameters of supply and demand for leather footwear exports from Taiwan subject to the U.S. Orderly Marketing Agreement, and explores the implications in a calibrated simulation exercise. The results are a strongindictment of VERs. For most plausible parameter values, VERs redirect exports, reduce the size of the industry, and cause overall economic losses, expecially if the affected industry is large.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
References listed on IDEAS 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.: