This paper analyzes the effects of the expiration of the Multi Fiber Arrangement (MFA), which ended quota restrictions on US textile and apparel imports in 2005, on the sourcing of US apparel. We test if the realignment in trade following the phase out of quotas can be explained by comparative advantage and market size.
We use a gravity framework to investigate the role of comparative advantage (labor costs) and other factors such as exporter size, PTAs and tariff reductions on the pattern of US apparel imports. Detailed data on quotas by country-product pair are used for the purpose.
Our empirical results show a significant increase in imports from large quota constrained countries once the MFA ended. Moreover, the pattern of trade seems to favor low wage countries that have a comparative advantage in producing apparel, which is highly labor intensive.
The end of quotas removed a major distorting factor in US apparel trade. This study examines the role of trade theory in the changing pattern of apparel imports that followed the end of the MFA. We use a gravity framework to test the theory of comparative advantage and the role of exporter size. Previous studies on the end of the MFA and its effects, do not examine the causal factors behind the realignment of US apparel trade.
