Trade and efficiency effects of domestic content protection: the Australian tobacco and cigarette industries

This paper provides an empirical investigation into the international trade and domestic market efficiency effects of physical domestic content requirement in the Australian tobacco leaf growing and cigarette manufacturing industries. Our empirical evidence suggests that the content requirement has distorted trade by restricting leaf imports. Nevetherless, the data are also consistent with the efficient contract hypothesis. The mix of domestic to imported leaf used in cigarette manufacturing depends on domestic leaf production costs and on world leaf prices, but not on the negeotitated domestic leaf price. -Authors