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Quality Upgrading and its Welfare Cost in U.S. Steel Imports, 1969-74

  • Randi Boorstein
  • Robert C. Feenstra

In this paper we measure the quality change which has occurred in U.S. steel imports during the 1969-74 VRA, using an index number method. Under this approach, the yearly changes in unit values is broken into three components: a quality-adjusted or pure price index; a quality index, which measures changes in the product mix; and a supplier index, which measures changes in the source of supply. We also derive a measure of welfare cost, which equals the inverse of a Paasche price index minus the inverse of an exact price index. Over the 1969-74 VRA period we find quality upgrading of 7.4 percent in U.S. steel imports, which occurs most strongly in the first year. The welfare cost of quality change varies around one percent of import expenditure during 1970-73. This cost is at least as large as the conventional deadweight loss triangle, but smaller than the transfer of quota rents.

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File URL: http://www.nber.org/papers/w2452.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2452.

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Date of creation: Dec 1987
Date of revision:
Publication status: published as in E. Helpman and A. Razin, eds., International Trade and Trade Policy, MIT Press, 1991, p. 167-186
Handle: RePEc:nbr:nberwo:2452
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. Feenstra, Robert C., 1985. "Automobile prices and protection: The U.S.-Japan trade restraint," Journal of Policy Modeling, Elsevier, vol. 7(1), pages 49-68.
  2. Diewert, W. E., 1985. "A dynamic approach to the measurement of waste in an open economy," Journal of International Economics, Elsevier, vol. 19(3-4), pages 213-240, November.
  3. Analysis, A Welfare & Das, Satya P. & Donnenfeld, Shabtai, 1987. "Trade policy and its impact on quality of imports," Journal of International Economics, Elsevier, vol. 23(1-2), pages 77-95, August.
  4. Krishna, Kala, 1990. "Protection and the Product Line: Monopoly and Product Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 87-102, February.
  5. James E. Anderson, 1988. "The Relative Inefficiency of Quotas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511789, June.
  6. Carlos Alfredo Rodriguez, 1979. "The Quality of Imports and the Differential Welfare Effects of Tariffs, Quotas, and Quality Controls as Protective Devices," Canadian Journal of Economics, Canadian Economics Association, vol. 12(3), pages 439-49, August.
  7. Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February.
  8. Diewert, W Erwin, 1983. " The Measurement of Waste within the Production Sector of an Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(2), pages 159-79.
  9. Falvey, Rodney E, 1979. "The Composition of Trade within Import-restricted Product Categories," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1105-14, October.
  10. Chinloy, Peter T, 1980. "Sources of Quality Change in Labor Input," American Economic Review, American Economic Association, vol. 70(1), pages 108-19, March.
  11. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  12. Kala Krishna, 1985. "Tariffs vs. Quotas with Endogenous Quality," NBER Working Papers 1535, National Bureau of Economic Research, Inc.
  13. Feenstra, Robert C, 1988. "Quality Change under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 131-46, February.
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