In economics, the effective rate of protection (ERP) is a measure of the total effect of the entire tariff structure on the value added per unit of output in each industry, when both intermediate and final goods are imported.
How do you calculate effective rate of protection?
In this calculation, effective protection equals nominal, i.e., 10%. However, suppose imported inputs used in motorcycles were $15000. Then the effective rate of protection is 25% (=((27500-15000)/10000))-1).
Is effective rate of protection always greater than nominal rate of protection?
The effective rate of protection computes the tariff rate as a proportion of the value added by an economic activity, so it is a much more accurate measure of how a particular stage of production is affected by nominal tariffs. Result 1: Effective protection is usually higher than nominal protection.
What is nominal rate of protection?
The nominal rate of protection is the percentage tariff imposed on a product as it enters the country. For example, if a tariff of 20 percent of value is collected on clothing as it enters the country, then the nominal rate of protection is that same…
What is a valorem tariff?
An ad valorem tariff is levied as a fixed percentage of the value of the commodity imported. “Ad valorem” is Latin for “on value” or “in proportion to the value.” The United States currently levies a 2.5 percent ad valorem tariff on imported automobiles.
What is nominal and effective interest rate?
Nominal interest rate is also defined as a stated interest rate. This interest works according to the simple interest and does not take into account the compounding periods. Effective interest rate is the one which caters the compounding periods during a payment plan.
What is loan effective interest rate?
The effective interest rate (EIR), effective annual interest rate, annual equivalent rate (AER) or simply effective rate is the interest rate on a loan or financial product restated from the nominal interest rate and expressed as the equivalent interest rate if compound interest was payable annually in arrears.
What is trade diversion effect?
Trade diversion is an economic term related to international economics in which trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement or a customs union. Total cost of good becomes cheaper when trading within the agreement because of the low tariff.
What is tariff escalation?
Higher import duties on semi-processed products than on raw materials, and higher still on finished products. This practice protects domestic processing industries and discourages the development of processing activity in the countries where raw materials originate.