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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. Tariff Structure Tariff structure refers to the relationship among tariffs in related industries.

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the effective rate of protection

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 protection2
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
the effective rate of protection3
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 protection4
The Effective Rate of Protection

ERP = (tf – ati) / (1 – a)

Where tfis 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 tiis the tariff on imported inputs used by the domestic producers.