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

35 Pages Posted: 29 Feb 2008 Last revised: 2 Feb 2010

See all articles by James Harrigan

James Harrigan

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Geoffrey Barrows

University of California, Berkeley - Department of Agricultural and Resource Economics

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Date Written: October 2006

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.

Suggested Citation

Harrigan, James and Barrows, Geoffrey, Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifibre Arrangement (October 2006). NBER Working Paper No. w12579. Available at SSRN: https://ssrn.com/abstract=1098867

James Harrigan (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Geoffrey Barrows

University of California, Berkeley - Department of Agricultural and Resource Economics ( email )

207 Giannini Hall
University of California
Berkeley, CA 94720
United States

HOME PAGE: http://sites.google.com/site/geoffreybarrows/

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