Voluntary export restraints and resource allocation in exporting countries

Most literature on voluntary export restraints ( VERs ) analyzes the welfare costs of VERs to consumers in the importing country. The authors propose a method for measuring the effects of a VER on the productivity of factors employed in the exporting industry. Their model measures how a VER affects both revenues and efficiency in an exporting industry. They used the model to estimate the effects of the U.S. Orderly Marketing Agreement ( OMA ) on Korean producers of leather footwear ( 1977 - 81 ). Their econometric estimates indicate a limited ability to redirect sales to unrestricted markets and a sharp fall in the marginal revenue during the period the OMA was in effect. They found that the marginal revenue product of factors employed in leather footwear declined as much as 9 percent because of OMA. Based on illustrative counterfactual simulations, the authors show that a VER is likely to produce a welfare loss if demand is relatively elastic and supply is not.