Rent Sharing in the Multi-Fibre Arrangement: Theory and Evidence from US Apparel Imports from Hong Kong

Kala Krishna (), Refik Erzan () and Ling Hui Tan

No 3673, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Available estimates of tariff equivalents of quotas and welfare calculations on the costs of MFA quotas for developing countries are based on the premise of perfect competition in both product and license markets. It is also assumed that the exporting countries which administer the MFA quotas receive all the scarcity rent. We argue that in the presence of market power on the buyers' side in the product market combined with concentration in the license markets, the importing countries may retain part of this rent, i.e. share it with the exporters. We analyze US imports of apparel products from Hong Kong to see if the data conform with all the relevant predictions of the competitive model. Our method essentially tests whether the license price inclusive Hong Kong price, adjusted for tariffs and transport costs, is equal to the domestic (US) price. A deviation between the two prices is taken to indicate rent sharing. We test the hypothesis with homogeneous goods, modify it to take into account compositional differences and, finally, consider differentiated goods. We find evidence that importers retain a substantial portion of the MFA quota rents.

Date: 1991-04
Note: ITI IFM
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Citations: View citations in EconPapers (6)

Published as Review of International Economics, February 1994, vol. 2, no. 1, pp. 62-73,

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Related works:
Journal Article: Rent Sharing in the Multi-fibre Arrangement: Theory and Evidence from U.S. Apparel Imports from Hong Kong (1994)
Working Paper: RENT SHARING IN THE MULTI-FIBRE ARRANGEMENT: THEORY AND EVIDENCE FROM US APPAREL IMPORTS FROM HONG KONG (1991)
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