Transcript The Effective Rate of Protection The Effective Rate of Protection measures the percentage effect of the entire tariff structure on the value added per unit.

The Effective
Rate of
Protection
The Effective Rate of Protection measures the
percentage effect of the entire tariff structure on
the value added per unit of output in each industry.
The Effective Rate of Protection

Tariff Structure
Tariff structure
refers to the
relationship among
tariffs in related
industries.

Value Added
Value added is the
difference between
the selling price
and the cost of
intermediate goods.
V = PA - PSa
The Effective Rate of Protection
ERP = ( V’- V ) / V



ERP = Effective Rate of Protection
V’ = Value Added with tariff
V = Value added with free trade
The Effective Rate of Protection
ERP = (tf – ati) / (1 – a)
Where tf is the nominal tariff on the
imported finished good, a is the value of
imported inputs as a share of the value of
the final good under free trade, and ti is the
tariff on imported inputs used by the
domestic producers.