Effects of the U.S.-Japan Auto VER on European Prices and on U.S. Welfare

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Abstract
This paper highlights the impact of VERs on the non-restricted supplier by investigating the effect of the U.S.-Japan auto VER on the behavior of European producers. Using three independent approaches (supply functions, hedonic regressions, and casual evidence), it shows that European producers raised prices by nearly one-third. U.S. welfare loss to Europe (3.4 billions in 1984) actually exceeded its loss to Japan (2.4 billions) and the small social loss within the United States. Total annual cost of a job saved in the industry was $181,000.

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