Modelling quantitative trade restrictions: Rationing in the Rotterdam model

Summary We develop methods of identifying if, following the imposition of a quantitative import restriction, consumers are rationed, and of allowing for this in the estimation of demand functions. We model demand with the Rotterdam model. The methods are based on Neary and Roberts' model of rationing and rely on identifying differences in the stochastic structure of demand under rationing and market clearing. By way of example we consider the demand-side effects of the voluntary export restraint imposed during the 1970s and 1980s on Comecon exports of women's and children's leather footwear to the UK. The methodology developed is equally applicable to the case where import prices rise to clear excess demand, leaving suppliers facing a quantity ration.This paper was written when the authors were members of the University College of North Wales, Bangor. We are grateful to the participants of seminars at the University of Surrey, The University College of North Wales, the Institute for International Economic Studies, Stockholm, the International Economics Study Group, and the European Workshop on International Trade, and to John Black and Wendy Takacs for comments on earlier drafts, and to Sue James for typing. This work is conducted under the auspices of the Centre for Economic Policy Research, London, and is financed by The Ford Foundation and the Department of Trade and Industry, to whom we are grateful. We are also indebted to two anonymous referees for improving the presentation.