Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifibre Arrangement

James Harrigan and Geoffrey Barrows

No 12579, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F1 F13 F14 (search for similar items in EconPapers)
Date: 2006-10
New Economics Papers: this item is included in nep-cna, nep-int, nep-sea and nep-tra
Note: ITI
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Citations: View citations in EconPapers (4)

Published as James Harrigan & Geoffrey Barrows, 2009. "Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifiber Arrangement," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 282-294, November.

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