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

42 Pages Posted: 28 Dec 2002 Last revised: 17 Jul 2010

See all articles by Kala Krishna

Kala Krishna

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

Refik Erzan

Bogazici University - The Faculty of Economics and Administrative Sciences

Ling Hui Tan

International Monetary Fund (IMF) - European Department

Date Written: April 1991

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.

Suggested Citation

Krishna, Kala and Erzan, Refik and Tan, Ling Hui, Rent Sharing in the Multi-Fibre Arrangement: Theory and Evidence from Us Apparel Imports from Hong Kong (April 1991). NBER Working Paper No. w3673, Available at SSRN: https://ssrn.com/abstract=227434

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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University Park, PA 16802-3306
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Refik Erzan

Bogazici University - The Faculty of Economics and Administrative Sciences ( email )

34342 Bebek - Istanbul
Turkey
90-212-358 15 00 / 358 15 40 (Phone)
90-212-287 24 53 / 287 09 42 (Fax)

HOME PAGE: http://www.econ.boun.edu.tr/staff/erzan/

Ling Hui Tan

International Monetary Fund (IMF) - European Department ( email )

700 19th St. NW
Washington, DC 20431
United States

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