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 cont ent requirement in the Australian tobacco leaf growing and cigarette m anufacturing industries. Our empirical evidence suggests that the cont ent requirement has distorted trade by restricting leaf imports. Never theless, the data are also consistent with the efficient contract hypo thesis. The mix of domestic to imported leaf used in cigarette manufac turing depends on domestic leaf production costs and on world leaf pri ces, but not on the negotiated domestic leaf price.