The effective rate of protection is the rate of protection provided to the value added in the production of a product. Let the effective price be defined as the domestic price of a unit of value added. Then the effective rate of protection (henceforth, ERP) is the proportional increase in the effective price made possible by tariffs and other measures. It is to be contrasted with the nominal tariff and (more generally) nominal rate of protection, which refers to the proportional increase in the nominal price. If the only policy instruments are tariffs, the ERP depends not only on the nominal tariff on the commodity concerned but also on the tariffs on the inputs and on the input coefficients.
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