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Duke Economics Working Paper #96-26

Can a Periodic VER Raise Importing Country Welfare?


Omer Gokcekus
and
Edward Tower

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.

JEL: F13

Published in Journal of Economic Integration, Vol. 12, No. 4, December 1997, pp. 485-504.