Policy, Research, and Extemal Affairs WORKING PAPERS Trade Policy Country Economics Department The WorldBank April 1990 WPS352 Voluntary Export Restraints and Resource Allocation in Exporting Countries Jaimede Melo and L. Alan Winters By reducing the marginal revenue of the factors of production, a voluntary export restraint (VER) causes an exporting country's industry to contract. Efficiency losses depend on whether sales can be diverted from restricted to unrestricted markets. A VER is likely to produce a welfare loss if demand is relatively elastic and supply is not. The Policy, Research, and External Affairs Complex distribuLes PRE Working Papers to dissaninate the findings of woik in progress and to encouragethe exchange of ideas among Bank staff and all others intersted in deveopment issues. These papas carry the names of the authors. reflect only their views, and should be used *nd cited accordingly.The findings, interpations, and conclusions are the authors' own. They should not be attributed to the World Bank, its Board of Diectors, its managenent, or any of its member courdes. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized