Effective Protection and Resource Allocation
One of the main topics on the agenda of international trade theorists in recent years has been the problem of effective protection. The concept of the effective rate of protection — the percentage distortion in value added attributable to tariffs on both the final and intermediate products in a production activity — is designed to indicate the degree of protection afforded different activities. As such, it has been used in studying the effect of tariff systems on resource allocation and in designing tariff systems for the achievement of policy goals such as encouraging certain industrial activities in less developed countries. In this paper, we evaluate the usefulness of the concept of effective protection for these purposes. In so doing, this paper establishes certain new results concerning the effect of the tariff system on resource allocation and illustrates a basic result concerning optimal tariff interference.
KeywordsFree Trade Effective Rate Effective Protection Factor Price Import Commodity
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