Bargains rejected? : developing country trade policy on used equipment

Many developing countries restrict imports of second-hand goods. These policies appear contrary to the optimal choice of technique in developing countries, where low wages, small markets, and scarce technical skills would appear to call for use of more labor intensive smaller scale, and lower-tech machines. This paper examines data on US exports of new and used metalworking machine tools by type and by country of destination to investigate the determinants of used versus new machinery trade. The results indicate that technological factors, skill constraints, and market size may be more important than factor prices in determining the choice of machine. Trade restrictions on used machinery distort firms' investment decisions.