Working Paper: NBER ID: w12579
Authors: James Harrigan; Geoffrey Barrows
Abstract: Quota restrictions on United States imports of apparel and textiles under the multifibre arrangement (MFA) ended abruptly in January 2005. This change in policy was large, predetermined, and fully anticipated, making it an ideal natural experiment for testing the theory of trade policy. We focus on simple and robust theory predictions about the effects of binding quotas, and also compute nonparametric estimates of the cost of the MFA. We find that prices of quota constrained categories from China fell by 38% in 2005, while prices in unconstrained categories from China and from other countries changed little. We also find substantial quality downgrading in imports from China in previously constrained categories, as predicted by theory. The annual cost of the MFA to U.S. consumers was about $90 per household.
Keywords: trade policy; multifibre arrangement; consumer welfare; binding quotas; quality upgrading
JEL Codes: F1; F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| binding quotas (D45) | prices (P22) |
| binding quotas (D45) | quality upgrading (L15) |
| end of MFA (Y20) | price declines (E30) |
| end of MFA (Y20) | quality downgrading (L15) |
| binding quotas (D45) | price inflation (E31) |
| binding quotas (D45) | quality improvement (L15) |
| MFA (C38) | welfare costs (I30) |