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Who Bears the Burden of Voluntary Export Restraints?

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  • Fuhmei Wang

Abstract

Conventional wisdom believes that voluntary export restraints (VERs) are beneficial for the exporting country but detrimental to the importing country. Based on the benchmark model of Obstfeld and Rogoff, this paper aims to examine this belief and evaluate the welfare effects of VERs on the world economy. Analytical results find that VERs exert expansion effects on the exporting economy temporarily. The conventional view of VERs effects holds only when there is perfect competition on the goods market or when the exporting country is bigger than the importing country. On the whole, VERs deteriorate the overall welfare of the world economy.

Suggested Citation

  • Fuhmei Wang, 2011. "Who Bears the Burden of Voluntary Export Restraints?," Prague Economic Papers, University of Economics, Prague, vol. 2011(3), pages 216-231.
  • Handle: RePEc:prg:jnlpep:v:2011:y:2011:i:3:id:397:p:216-231
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    References listed on IDEAS

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    4. Flam, Harry, 1994. "EC members fighting about surplus VERs, FDI and Japanese cars," Journal of International Economics, Elsevier, vol. 36(1-2), pages 117-131, February.
    5. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
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    10. Michael O. Moore & Steven M. Suranovic, 1993. "A Welfare Comparison between VERS and Tariffs under the GATT," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 447-456, May.
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    12. 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.
    13. Ali M. El-Agraa, 1995. "VERs as a Prominent Feature of Japanese Trade Policy: Their Rationale, Costs and Benefits," The World Economy, Wiley Blackwell, vol. 18(2), pages 219-235, March.
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    More about this item

    Keywords

    voluntary export restraints; welfare effects; country sizes;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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