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Gains from Trade in Used Goods: Evidence from the Global Market for Automobiles

Author Info

  • Sofronis Clerides

Abstract

This paper investigates the welfare effects of trade liberalization by exploiting a natural policy experiment in the small open economy of Cyprus. A 1993 law relaxed import restrictions on used vehicles and facilitated the flow of used Japanese vehicles into the country. This led to a dramatic shift of consumer purchases from new to used cars and a substantial expansion of the overall market. Estimated welfare gains are of the order of several hundred dollars per purchaser. The findings are indicative of the potential for substantial gains from liberalizing trade in used goods, which could also alter trade flows and production

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File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/6-2004.pdf
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Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 6-2004.

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Length: 25 pages
Date of creation: Dec 2004
Date of revision:
Handle: RePEc:ucy:cypeua:6-2004
Contact details of provider: Web page: http://www.econ.ucy.ac.cy

Keywords: automobile industry; differentiated products; gains from trade; used goods; trade liberalization;

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Find related papers by JEL classification:
  • F14 - International Economics - - Trade - - - Empirical Studies of Trade
  • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
  • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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  1. Bond, Eric W, 1983. "Trade in Used Equipment with Heterogeneous Firms," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 688-705, August.
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  9. repec:rus:hseeco:121669 is not listed on IDEAS
  10. Pinelopi Koujianou Goldberg & Frank Verboven, 1998. "The Evolution of Price Dispersion in the European Car Market," NBER Working Papers 6818, National Bureau of Economic Research, Inc.
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  13. repec:cup:etheor:v:13:y:1997:i:2:p:185-213 is not listed on IDEAS
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  15. Smith, M. A. M., 1974. "International trade in second-hand machines," Journal of Development Economics, Elsevier, vol. 1(3), pages 261-278, December.
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  18. Navaretti, Giorgio Barba & Soloaga, Isidro & Takacs, Wendy, 2000. "Vintage Technologies and Skill Constraints: Evidence from U.S. Exports of New and Used Machines," World Bank Economic Review, World Bank Group, vol. 14(1), pages 91-109, January.
  19. Smith, M A M, 1976. "International Trade Theory in Vintage Models," Review of Economic Studies, Wiley Blackwell, vol. 43(1), pages 99-113, February.
  20. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-79, April.
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  22. Genesove, David, 1993. "Adverse Selection in the Wholesale Used Car Market," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 644-65, August.
  23. Clerides, Sofronis & Hadjiyiannis, Costas, 2005. "Trade-Inducing Quality Standards for Used Durables," CEPR Discussion Papers 4838, C.E.P.R. Discussion Papers.
  24. Bond, Eric W, 1982. "A Direct Test of the "Lemons" Model: The Market for Used Pickup Trucks," American Economic Review, American Economic Association, vol. 72(4), pages 836-40, September.
  25. Nagaoka, Sadao & Kimura, Fukunari, 1999. "The Competitive Impact of International Trade: The Case of Import Liberalization of the Japanese Oil Product Market," Journal of the Japanese and International Economies, Elsevier, vol. 13(4), pages 397-423, December.
  26. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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Cited by:

  1. Clerides, Sofronis & Hadjiyiannis, Costas, 2008. "Quality standards for used durables: An indirect subsidy?," Journal of International Economics, Elsevier, vol. 75(2), pages 268-282, July.
  2. Clerides, Sofronis, 2008. "Gains from trade in used goods: Evidence from automobiles," Journal of International Economics, Elsevier, vol. 76(2), pages 322-336, December.
  3. Nkunde Mwase, 2006. "An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania," IMF Working Papers 06/150, International Monetary Fund.

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