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Voluntary Export Restraints and Resource Allocation in Exporting Countries

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  • de Melo, Jaime
  • Winters, L Alan

Abstract

This article analyzes the resource implications of voluntary export restraints (VERs) for exporting countries. A simple analytical method is used to demonstrate that, by reducing the marginal revenue of its factors of production, a VER causes an industry in the exporting country to contract, and that the efficiency losses from a VER depend on the ease with which sales can be diverted from the restricted toward the unrestricted markets. The method is applied to test the effects of the U.S. Orderly Marketing Agreement (OMA) for producers of leather footwear in the Republic of Korea during the period 1977-81. We estimate that the marginal revenue product of factors employed in leather footwear declined by as much as 9 percent because of the OMA, an estimate that is corroborated by inspection of time series on output, employment, and wages of the Korean footwear sector. This implies that there was pressure on the Korean footwear industry to contract as a result of the OMA. Copyright 1990 by Oxford University Press.

Suggested Citation

  • de Melo, Jaime & Winters, L Alan, 1990. "Voluntary Export Restraints and Resource Allocation in Exporting Countries," The World Bank Economic Review, World Bank, vol. 4(2), pages 209-233, May.
    • Handle: RePEc:oup:wbecrv:v:4:y:1990:i:2:p:209-33
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    Cited by:

    1. Roberto A. De Santis, 2003. "Why exporting countries agree to voluntary export restraints: the oligopolistic power of the foreign supplier," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 247-263, August.

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