Working Paper: CEPR ID: DP383
Authors: Jaime de Melo; L. Alan Winters
Abstract: Previous literature has concentrated on the rent transfer accruing to exporting countries when a VER is binding. This paper studies the efficiency and distributional effects arising when VERs force factors out of industries in which they are most productive. A theoretical model of the industry under the VER is developed to establish qualitative conditions under which a VER will result in: spillovers of exports to unrestricted markets; industry contraction; and loss in national welfare. Key parameters of demand and supply are estimated for leather footwear exports from Taiwan subject to the USA Orderly Marketing Agreement, and their implications explored in a calibrated simulation exercise.
Keywords: voluntary export restraints; exporters; efficiency losses; welfare; footwear; Taiwan
JEL Codes: 422; 631
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| VERs (Y10) | scarcity premium for exports (F14) |
| VERs (Y10) | rent transfer to exporting countries (F16) |
| VERs (Y10) | efficiency losses (D61) |
| efficiency losses (D61) | industry contraction (L19) |
| factors of production forced out of productive industries (P23) | national welfare decrease (I38) |
| VERs (Y10) | reduction in industry size (L16) |
| VERs (Y10) | reduction in profits (D33) |
| VERs (Y10) | worsening of national welfare (H53) |
| efficiency losses (D61) | benefits of increased profits in restricted market (D45) |