Abstract
The establishment of the European Community, a more inward-looking trade policy on the part of the United States and, last but not least, the urgent demands of less developed countries for free access to the markets of the highly industrialised countries have revived international interest in the impact of foreign trade regulations on a country’s domestic industry. One of the major points of interest is to analyse how trade regulations influence the comparative costs of domestic industries and consequently the structural pattern of industry. Protective measures such as tariffs, import quotas, subsidies and taxes alter a given industrial pattern by providing some industries with an advantage, while the economic conditions of others remain unchanged or even worsen. In the course of international trade liberalisation, reductions of barriers to trade will create a need for adjustment processes in almost all economic activities. The calculation of effective rates of protection may help to achieve a better adjustment by providing information on the impact of trade regulations on gross production.
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Notes and References
A simple introduction to the theory of effective protection is given in H. G. Grubel, “Effective Tariff Protection, A non-specialist Guide to the Theory, Policy Implications and Controversies”, in H. G. Grubel and H. G. Johnson (eds), Effective Tariff Protection (Geneva: GATT Secretariat and Graduate Institute of International Studies, 1971).
A more rigorous treatment of the subject may be obtained from W. M. Corden, The Theory of Protection (Oxford: Clarendon Press, 1971).
W. M. Corden, “The Tariff”, A. Hunter (ed.), The Economics of Australian Industry, Studies in Environment and Structure (Melbourne: Melbourne University Press, 1963).
See B. Cameron, “The Production Function in Leontief Models”, Review of Economic Studies Vol. 20, 1952–53, pp. 62 et seq.
K. J. Arrow and M. Hoffenburg, A Time Series Analysis of Interindustry Demand (Amsterdam: North Holland Publishing Company, 1959)
Also see M. Hatanaka, “The Workability of Input-Output Analysis”, Fachverlag für Wirtschaftstheorie und Okonometrie (Ludwigshafen, 1960)
C. B. Tilanus, “Input-output Experiments. The Netherlands 1948–1961”, Rotterdam dissertation, 1965, pp. 42 et seq.
Some studies prove that this assumption is not far-fetched empirically. For West Germany see Gerhard Fels. For West Germany see Gerhard Fels, “Der internationale Preiszusammenhang-Eine Studie über den Inflationsimport in der BRD”, Annales Universitatis Saraviensis, Rechts- und Wirtschaftswissenschaftliche Abteilung, Heft 46, Cologne, 1969.
Bela Balassa et al., The Structure of Protection in Developing Countries (Baltimore and London: Johns Hopkins University Press, 1971).
This idea was developed by J. C. Leith, but he did not explain the theoretical background of his suggestion in detail. See J. C. Leith, “Substitution and Supply Elasticities in Calculating the Effective Protective Rate”, Quarterly Journal of Economics, Vol. 82, Cambridge, Mass, 1968, pp. 588 et seq.
G. Gehrig et al., “Ergebnisse der Input-Output Rechnung, 1961–1964”, Input-Output Studien Teil 6–9 (Munich: Ifo-Institut für Wirtschaftsforschung, 1965).
For the sensitivity tests see Ulrich Hiemenz and Kurt v. Rabenau, Effektive Protektion Theorie und Berechnung für die westdeutsche Industrie, Kieler Studien 123 (Tubingen: The Kiel Institute of World Economics, 1973) pp. 139 et seq.
Bela Balassa, “Tariff Protection in Industrial Countries”, Journal of Political Economy, Vol. 73, Chicago, 1965, pp. 573 et seq.
G. Basevi, “The U.S. Tariff Structure: Estimate of Effective Rates of Protection of U.S. Industries and Industrial Labour”, Review of Economics and Statistics, Vol. 48, Cambridge, Mass., 1966, pp. 147 et seq.
I. Little, T. Scitovsky and M. Scott, Industry and Trade in Some Developing Countries: A Comparative Study (London, New York and Toronto: Oxford University Press, 1971).
For a comprehensive analysis of the preference scheme see J. B. Donges, Gerhard Fels, Axel Neu et al., Protektion und Branchenstruktur der westdeutschen Wirtschaft Kieler Studien No. 123 (Tübingen: The Kiel Institute of World Economics, 1973) pp. 86–95.
For a general survey of non-tariff trade regulations see R. E. Baldwin, Nontariff Distortions of International Trade (Washington: Brookings Institution, 1970).
For a detailed analysis of this mechanism see Hans H. Glisman and Axel Neu, “Towards New Agreements on International Trade Liberalization — Methods and Examples of Measuring Non-tariff Trade Barriers”, Weltwirtschaftliches Archiv, Vol 107, Kiel, 1971, pp. 235 et seq., and Hiemenz and v. Rabenau, op. cit. pp. 112 et seq.
This criterion arises because the possible trade effect of a general subsidy or tax would be nullified by a subsequent exchange rate adjustment which would be necessary to preserve a balance-of-payments equilibrium. Consequently, direct taxes, general subsidies and regional development programmes need not be considered as they seldom favour only single industries. For a different opinion see H. G. Grubel and H. G. Johnson, “Nominal Tariffs, Direct Taxes and Effective Rates of Protection: The Common Market Countries 1959”, Economic Journal London, 1967, pp. 761 et seq.
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© 1976 Trade Policy Research Centre and Institut für Weltwirtschaft an der Universität Kiel
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Hiemenz, U., v. Rabenau, K. (1976). Effective Protection of German Industry. In: Corden, W.M., Fels, G. (eds) Public Assistance to Industry. Trade Policy Research Centre. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-02761-3_2
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DOI: https://doi.org/10.1007/978-1-349-02761-3_2
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