VII - Effects of the MFA on Thailand

Summary

The simulation model of global clothing trade presented in this chapter evaluates the effects of trade distortions on world trade in clothing, with special reference to the effect on Thailand. Like the model presented in Chapter 6, this mode is global in nature and hence captures terms of trade effects. It also incorporates differentiated products by country of origin. The differentiated product models have been widely applied to community trade, particularly to agricultural products. Honma and Heady (1984) examined the trade flows of the international wheat trade, and Pearson and Babula (1988) applied the same type of model to the effects of Japanese monetary policy on U.S. agricultural exports.

Model Relating to Clothing and Textiles

Several models have dealt with clothing and textiles. Wallace, Naylor and Sasser (1971) presented an econometric model of the textile industry in the United States in an attempt to explain the behaviour of U.S. producers. Hamilton (1981) developed a model to analyse the effects of import quota restrictions on the Swedish textile industry. Cline (1987) constructed a model of clothing and textiles for the United States to explain why imports into the United States increased sharply in the early 1980s. He concluded that the major reason were overvalued exchange rates. All of these earlier models were partial equilibrium models of the homogeneous product type rather than global in nature, and hence they were unable to deal with the implications of the arrangements for world prices. Partial models tend to emphasize the rise in domestic prices brought about by restrictive arrangements. These provide gains to developing countries. But the models cannot capture price depressing terms of trade effects in other markets.

The most recent model for clothing and textiles was constructed by Trela and Whalley (1988). They applied a CGE structure to global trade in clothing and textiles to evaluate the welfare effects of the MFA on exporting countries.