Internal Quota Allocation Schemes and the Costs of the MFA

This paper suggests that schemes used within developing countries to allocate textile export quota among domestic producers typically have more severe negative effects on developing country economic performance than the MFA export quotas themselves. We summarize allocation schemes in 17 countries, highlighting common 'lock-in' and 'rent dissipation' effects of such schemes. We then use a global general equilibrium model to evaluate the effects of MFA removal with and without these additional effects. Results indicate that estimates of gains to developing countries from an MFA removal are larger and by significant orders of magnitude (we suggest a factor of 8) when internal quota allocation schemes are also included. Removing the negative effects of quota allocation schemes thus seems to clearly dominate traditional access benefits to developing countries from MFA removal.