Working Paper: CEPR ID: DP4859
Authors: 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.
Keywords: automobile industry; differentiated products; gains from trade; trade liberalization; used goods
JEL Codes: F14; L13; L92
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Relaxation of import restrictions in 1993 (F14) | Shift in consumer purchases from new to used cars (D16) |
| Shift in consumer purchases from new to used cars (D16) | Increase in market share of used imports (F10) |
| Shift in consumer purchases from new to used cars (D16) | Expansion of the overall market (D49) |
| Influx of used cars (R41) | Substantial welfare gains (D69) |
| Influx of used cars (R41) | Increased product variety (L15) |
| Influx of used cars (R41) | Increased tax revenue for the government (H29) |
| Trade liberalization in the used car market (F14) | Substantial welfare gains for low-income consumers (D69) |