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Who Bears the Burden of Voluntary Export Restraints?

  • Fuhmei Wang
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    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.

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    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2011 (2011)
    Issue (Month): 3 ()
    Pages: 216-231

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    Handle: RePEc:prg:jnlpep:v:2011:y:2011:i:3:id:397:p:216-231
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    1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
    2. Ono, Yoshiyasu, 1984. "Profitability of export restraint," Journal of International Economics, Elsevier, vol. 16(3-4), pages 335-343, May.
    3. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    4. 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 447-56, May.
    5. Aw, Bee Yan, 1992. "An empirical model of mark-ups in a quality-differentiated export market," Journal of International Economics, Elsevier, vol. 33(3-4), pages 327-344, November.
    6. Kala Krishna, 1985. "Trade Restrictions as Facilitating Practices," NBER Working Papers 1546, National Bureau of Economic Research, Inc.
    7. 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, 03.
    8. John Fender & Chong K. Yip, 1998. "Tariffs and Exchange Rate Dynamics Redux," Departmental Working Papers _105, Chinese University of Hong Kong, Department of Economics.
    9. Demidova, Svetlana & Rodríguez-Clare, Andrés, 2009. "Trade policy under firm-level heterogeneity in a small economy," Journal of International Economics, Elsevier, vol. 78(1), pages 100-112, June.
    10. Dei, Fumio, 1985. "Welfare gains from capital inflows under import quotas," Economics Letters, Elsevier, vol. 18(2-3), pages 237-240.
    11. 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.
    12. Anderson, James E, 1985. "The Relative Inefficiency of Quotas: The Cheese Case," American Economic Review, American Economic Association, vol. 75(1), pages 178-90, March.
    13. 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, 08.
    14. Zhou, Dongsheng & Vertinsky, Ilan, 2002. "Can protectionist trade measures make a country better off? A study of VERs and minimum quality standards," Journal of Business Research, Elsevier, vol. 55(3), pages 227-236, March.
    15. Masayuki Okawa, 2004. "Voluntary Export Restraints under Imperfect Competition," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 138-150, 02.
    16. 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.
    17. Michael O. Moore, 2005. "VERs and Price Undertakings under the WTO," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 298-310, 05.
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