Can a Periodic VER Raise Importing Country Welfare?

Omer Gokcekus and Edward Tower

No 96-26, Working Papers from Duke University, Department of Economics

Abstract: Several authors have argued that if exporting firms anticipate a voluntary export restriction in a future period, and they expect VERs to be allocated in proportion to past exports, then they have an incentive to dump in the earlier period. In this paper we ask: How does a regime characterized by periodic VERs affect aggregate welfare, consumer welfare and import-competing producer welfare in the importing country: we discover paradoxically, that the answers are all uncertain. However, such a regime always shrinks world-wide efficiency, and normally, for the importer it shrinks aggregate welfare and consumer welfare and raises producer welfare.

Date: 1996
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Published in JOURNAL OF ECONOMIC INTEGRATION, Vol. 12, 1997, pages 485-504

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