| 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 $100 per household. |