Working Paper: CEPR ID: DP716
Authors: Riccardo Faini; Jaime De Melo; Wendy Takacs
Abstract: The paper identifies the potential sources of allocative inefficiency generated by the Multi-Fiber Agreements (MFA) and examines the evidence for such inefficiencies. Five sources of inefficiency are identified relating to inefficient allocations across countries, across consumers, and among firms within constrained countries. Evidence is first provided from trends in import shares for aggregate categories of textiles and clothing before and during the MFA. Second, evidence is provided from a detailed examination of quota utilization rates and price differentials among EC importing countries.
Keywords: allocative efficiency; multifiber agreements; quotas
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MFA reallocates production from lower-cost suppliers in developing countries to higher-cost domestic suppliers in developed countries (F16) | increased total production costs and welfare losses (D69) |
| MFA generates inefficiencies by reallocating production from constrained exporting countries to unconstrained ones (F16) | higher overall production costs and a loss of efficiency (D24) |
| quota system leads to inefficient allocations among firms within constrained exporting countries (F14) | increased production costs and a loss of efficiency (D24) |
| MFA leads to price differentials among consumers in different constrained importing countries (F14) | consumers in higher-priced markets are not receiving goods efficiently (F61) |