Liberalization, quality and welfare : removing the Italian VER on Japanese car exports
Both the theoretical and the empirical literature on international trade agree that quantitative restrictions on trade have an impact on the average quality of exports. Yet, in evaluating (ex-ante) trade policy effects, there are no studies tiling into account the role of the change in quality. In this paper the choice of quality is endogenized in a two-stage game in a model which is calibrated to the Italian car market, one of the mast protected in Europe. Simulating the removal of the VER on Japanese exports, there are substantial gains from liberalization when only quantity effects are considered. Results change dramatically if quality effects are taken into account: the downgrading in Japanese exports entails a strong reduction in consumers' gains.
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