International trade in used cars and problems of economic development

Abstract

This paper provides a price-theoretic explanation of the well-known phenomenon that automobiles in developing countries depreciate less rapidly and are scrapped at a greater age than they are in industrial countries. This paper then argues that the renewal of barriers to free trade in used cars would lead to substantial welfare gains for developing countries through both capital gains implicit in the arbitrage and positive externalities from car repair industries. Negative externalities from increased car supplies are evaluated and the final part of this paper considers what policies might be needed to develop international trade in used cars on a large scale.