© 1990 International Bank for Reconstruction and Development / The World Bank
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Voluntary Export Restraints and Resource Allocation in Exporting Countries
Jaime de Melo is an economist at the World Bank and an associate of the Centre for Economic Policy Research, London. L. Alan Winters is a professor of economics at the University of Birmingham and an associate of the Centre for Economic Policy Research. The authors thank three referees, Wendy Takacs, Paul Brenton, and Taeho Bark, participants at the Centro Interuniversitario di Studi Teorici per la Politica Economica-Centre for Economic Policy Research Conference in Venice, May 1988 and at the European Research Workshop in International Trade in Bergen in July 1989 for helpful comments on an earlier draft. They also thank Maria Ameal and Alexander Pfaff for logistical support.
This article analyzes the resource implications of voluntary export restraints (VERs) for exporting countries. A simple analytical method is used to demonstrate that, by reducing the marginal revenue of its factors of production, a VER causes an industry in the exporting country to contract, and that the efficiency losses from a VER depend on the ease with which sales can be diverted from the restricted toward the unrestricted markets. The method is applied to test the effects of the U.S. Orderly Marketing Agreement (OMA) for producers of leather footwear in the Republic of Korea during the period 1977–81. We estimate that the marginal revenue product of factors employed in leather footwear declined by as much as 9 percent because of the OMA, an estimate that is corroborated by inspection of time series on output, employment, and wages of the Korean footwear sector. This implies that there was pressure on the Korean footwear industry to contract as a result of the OMA.