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Effective protection

Updated: Aug 20, 2021

The effects of a tariff system on an industry’s value added, taking account of tariffs on imported inputs as well as on output. Defining units of output and imported inputs so that their prices would be 1 under free trade, if the tariff on output is 100t per cent and the tariffs on imported inputs are 100s per cent, and a units of imported inputs are used per unit of output, with zero tariffs value added per unit of output is (1 — a). With tariffs value added per unit is [(1+t)—al(l+s)].

Effective protection

Effective protection is increased by higher tariffs on output, and decreased by higher tariffs on imported inputs.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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