Differential Tariffs, Negative Value-Added and the Theory of Effective Protection
This article examines the implications for effective protection(EP) theory of allowing variable factor proportions and general equilibrium repercussions. The first claim of EP theory, is that it provides a measure of the maximum proportionate increase in factor rewards permitted by a tariff structure, as compared to a free trade regime. EP rates predict only a particular direction of resource flows whereas general equilibrium analysis, with variable input coefficients, indicates that flows contrary to EP prediction are possible. Two examples are provided, first, where there is a uniform tariff on final goods; and second, where one final sector has a higher nominal tariff than the other and there is no tariff on material imports. EP rates depend not only on nominal tariffs but also on value-added.
American Economic Review
American Economic Association
TAN, Augustine H. H..
Differential Tariffs, Negative Value-Added and the Theory of Effective Protection. (1970). American Economic Review. 60, (1), 107-116. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/4