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Multi-Market Firms and Export Quota: Effects of Withdrawal of the Multi-Fiber Arrangement

  • Saibal Kar
  • Mausumi Kar
Chapter
Part of the India Studies in Business and Economics book series (ISBE)

Abstract

The international trade in goods and services is dominated by multi-market firms. A firm’s decision to sell in the domestic market vis-à-vis the foreign market depends on a number of factors including transport costs, price uncertainties and the barriers to trade. We study the effect of a reduction in non-tariff barriers or quotas on the optimal decision of firms to allocate output between the domestic market and the foreign market. We offer a theoretical analysis on how firms reallocate sales between multiple markets when the exogenous barriers are lifted. We find that the theoretical conjecture might get valid support from the evolving pattern of exports by a large number of textile and apparel manufacturing firms originating in India. Principally, we obtain a condition under which the choice of the firm to operate in multiple markets depends on the relative strengths of how profit at the margin reacts to price uncertainty in one of the markets, as compared to the effect of the sales in one market on the price of another. It seems that the withdrawal of the quota since 2005 has led to a greater focus on the domestic market for Indian firms, and within the country there has also been an increased concentration of firms. We used the Hirschman-Herfindahl Index to measure if Indian firms have become more concentrated in terms of sales during the previous 2 decades. The concentration of firms has unambiguously increased in the past 2 years.

Keywords

Transport Cost World Trade Organization Foreign Market Domestic Market Export Market 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Notes

Acknowledgments

This chapter has benefited from the presentation at the Annual General Conference on Contemporary Issues in Development Economics at Jadavpur University, December 2014 and CTRPFP National Conference at CSSSC held in February 2015. The usual disclaimer applies.

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Copyright information

© Springer India 2016

Authors and Affiliations

  1. 1.Centre for Studies in Social SciencesKolkataIndia
  2. 2.IZABonnGermany
  3. 3.Women’s Christian CollegeKolkataIndia

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