An Empirical Analysis on the Effects of Parallel Reimportation: The Case of Korean Automobile Market

• Main Author: Chang, Woo Hyun
• Format: Article
• Language: English
• Published: Korea Development Institute 2014-11-01
• Series: KDI Journal of Economic Policy
• Subjects: 재병행수입(Parallel Reimportation); 구조모형 추정(Structural Estimation); 반사실적 실험(Counterfactual Experiment); 자동차시장(Automobile Market)
• Online Access: https://doi.org/10.23895/kdijep.2014.36.4.71

This paper examines the possibility of ‘parallel reimportation’, the reimportation of goods originally produced in the country and exported to another country by profit-pursuing arbitrageurs. The chance of parallel reimportation implies unusually high level of market power of domestic enterprises, and promoting parallel reimportation can be an effective welfare-enhancing, competition-generating policy for the situation. Motivated by the finding, this paper proposes a methodology to measure the welfare effects of parallel reimportation. Specifically, this paper makes use of a structural empirical model to estimate the demand and supply system of Korean automobile market for performing a counterfactual experiment to measure the welfare effects of the parallel reimportation. The results indicates that parallel reimportation can enhance social welfare considerably by increasing consumer surplus and government tax revenue altogether, though it reduces the producer surplus.