Effective Protection Redux
This paper rehabilitates effective protection. The usual definition of the effective rate of protection is the percentage change in value added per unit induced by the tariff structure. The problem is that in general equilibrium this measure corresponds to no economically interesting magnitude. The effective rate of protection for sector j is defined here as the uniform tariff which is equivalent to the actual differentiated tariff structure in its effects on the rents to residual claimants in sector j. This definition applies to general as well as partial equilibrium economic structures, has obvious relevance for political economy models and seems to correspond to the motivation for the early effective protection literature. Like the earlier effective rate formula, the concept is operational using the widely available set of Computable General Equilibrium (CGE) models.
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|Date of creation:||Jul 1994|
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