IMPACT OF THE MFA PHASE-OUT ON THE WORLD ECONOMY AN INTERTEMPORAL, GLOBALGENERAL EQUILIBRIUM ANALYSIS

Abstract

This study focuses on the possible impact of the MFA phase-out on the world economy. Starting from analyzing trends in world textile and apparel trade (T&A), the study found that the developing countries were a growing factor in world T&A trade in recent decades. Moreover, using trade data from 91 countries over 37 years, the empirically investigate of the study indicates a strong positive relationship between trade in textile and apparel and the standard of living. However, about 50 percent of industrial countries’ markets are not available for developing countries and intra-EU trade still accounts for half of total EU imports of T&A products. A more open and freer market in the industrial countries is an important condition for developing countries to maintain their growth momentum. The study further focuses on the possible impacts of the MFA phase-out on the world T&A trade using an intertemporal, global general equilibrium model. The study found that the MFA phase-out would enlarge world trade of T&A and developing countries will further gain market share in world total exports. Almost all countries, including both the developing countries restrained by the MFA quotas and free from the MFA quotas, and the industrial countries, gain in term of social welfare post- MFA in the model. Even though the developing countries currently free from the MFA quota restrains may lose their market shares, as world T&A prices are lowered by improving the efficiency of world T&A trade post-MFA, consumers are better off by consuming cheap commodities.

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