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DECTI Trade Seminar: When Institutional Reform is Embedded in Trade Liberalization

Sponsor: Development Economics and Chief Economist (DEC)

Speaker: Peter K. Schott, Yale School of Management and NBER
Abstract: When the removal of trade barriers coincides with the elimination of inecient institutions created to manage them, the gains from trade increase. We investigate the change in productivity associated with the removal of quotas on Chinese textile and clothing exporters and the concomitant elimination of the institution which allocated quotas. When quotas were abolished in 2005, Chinese export value and quantity surged and export prices declined. We show that these responses are due predominantly to the extensive margin: entrants gained market share at the expense of incumbent state-owned enterprises, and they entered with relatively low prices. These reactions are inconsistent with an ex ante assignment of quotas on the basis of rm productivity.
We estimate that roughly half of the overall productivity gain among China's textile exporters following quota removal is due to the elimination of the quota licensing institution.

For Information: Anna Regina Rillo Bonfield

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