Gains From Trade in Used Goods: Evidence from the Global Market for Automobiles

This Paper investigates the welfare effects of trade liberalization by exploiting a natural policy experiment in the small open economy of Cyprus. A 1993 law relaxed import restrictions on used vehicles and facilitated the flow of used Japanese vehicles into the country. This led to a dramatic shift of consumer purchases from new to used cars and a substantial expansion of the overall market. Estimated welfare gains are of the order of several hundred dollars per purchaser. The findings are indicative of the potential for substantial gains from liberalizing trade in used goods, which could also alter trade flows and production.