Frequent question: What could cause the effective rate of protection on a good to be negative?

If the total value of the tariffs on importable inputs exceeds that on the output, the effective rate of protection is negative, i.e., the industry is discriminated against in comparison with the imported product.

Under what circumstances is the effective rate of protection of a tariff greater than the nominal rate?

From the above illustration, the conclusion follows that the effective rate of protection will exceed the nominal tariff rate, whenever the imported input is admitted duty free or a lower tariff rate is imposed on the imported input than on the final commodity produced with the imported input.

What is the most serious shortcoming of the concept and measure of effective protection?

A major limitation of the concept is that it is based upon the partial equilibrium analysis or particular product analysis. When import tariff raises the price of imported input, the domestic producers are likely to substitute cheaper domestic or imported inputs in products. Such effects have been overlooked.

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What is effective tariff?

Economists refer to this as the nominal tariff. However, the actual amount of protection is measured by something called an effective tariff. The effective rate compares the tariff to the value added in the country, not to the total value of the product.

What does negative effective rate of protection mean?

If the total value of the tariffs on importable inputs exceeds that on the output, the effective rate of protection is negative, i.e., the industry is discriminated against in comparison with the imported product.

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 the difference between nominal rate and effective rate?

Effective interest rate is the one which caters the compounding periods during a payment plan. … The nominal interest rate is the periodic interest rate times the number of periods per year. For example, a nominal annual interest rate of 12% based on monthly compounding means a 1% interest rate per month (compounded).

What is the effective rate of assistance?

The Effective Rate of Assistance (ERA) is the percentage increase in returns, to an activity’s, or industry’s, value added per unit of output, relative to the (hypothetical) situation of no assistance.

What are the pros and cons of protectionism?

Top 10 Protectionism Pros & Cons – Summary List

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Protectionism Pros Protectionism Cons
Higher profits for local firms People may leave the country
Less unlawful actions Market forces are not working properly
Additional tax revenue Protectionism may increase tension between countries
Lower trade deficits Limited choice of products

Why do countries put up or impose trade barriers?

Generally, governments impose barriers to protect domestic industry or to “punish” a trading partner. … Trade barriers, such as taxes on food imports or subsidies for farmers in developed economies, lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers.

What is tariff revenue?

Definition: A revenue tariff is a tax rate applied with the purpose of obtaining direct income from corporate revenues. A revenue tariff has a substantial effect on price levels.

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.