Assessing the economic impact of the MFA: An analysis of estimation, aggregation, and modeling methods

This research estimates the impact of the Multi-fiber Arrangement (MFA) on the U.S. economy. Research in this area typically focuses on aggregate industry sectors and thus does not capture the sector-specific effects of this important trade barrier. By disaggregating the textile and apparel sectors and examining the MFA on a country and regional supplier basis, this dissertation provides a more comprehensive analysis of the MFA's impact. The dissertation develops country and sector-specific export tax equivalents for the 1993 MFA quotas on exports to the United States. The estimation approach follows previous research, but utilizes data that better represent country and sector-specific production costs. Second, it examines two aggregation approaches. Aggregation of the country-specific export tax equivalents using a CES aggregator generates estimates that are consistent with the aggregation structure contained in the CGE model in which they are used as inputs. The CES estimates provide a measure of the downward bias associated with comparable import-weighted aggregates. Although this approach has been applied to ad valorem tariffs, it has not been used to aggregate the MFA export tax equivalents. Finally, two features of the CGE model used here distinguish it from standard one-country models. First, it disaggregates U.S. trade flows by regional source. This feature generally is found only in regional or global CGE models. The model also allows changes in quotas to be represented in terms of quantities. The price effects of new quota levels are then determined endogenously. Although this approach uses export tax equivalents for model calibration, it differs from the typical treatment of quotas found in other CGE models since the export tax equivalents are endogenous variables in subsequent simulations. The simulation results are generally consistent with previous estimates of the economic effects of the MFA on the U.S. economy. Had the MFA quotas been eliminated in 1993, U.S. economy-wide gains would likely have ranged from $9 to $14 billion. The results indicate that quota elimination will generate significant changes in trade and production patterns. Moreover, the changes will vary considerably across subsectors of the textile and apparel industries.