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Effective protection in the presence of joint production
Abstract
This paper analyzes the measurement of effective protective rates when there is joint production. It shows that special attention is required when tradables are jointly produced with non-tradables, and especially when there are significant changes in the prices of non-tradables. Input-output formulas for the Balassa and Corden methods are provided.
This paper distinguishes between by-products of the activity and those associated with changes in the demand for another jointly-produced output. It attempts to define when one or more jointly-produced outputs would be by-products of the activity and others would be produced at the margin. The conditions are explored that are necessary for one or more jointly-produced outputs to be, or behave like, by-products of the activity. These conditions are expected to help in sorting out by-products from marginally produced outputs in the preparation of cost structures for analytic work.
The nine papers in this volume were written for a conference on research in international trade and finance held at Princeton University in March 1973. Each author was asked to survey research on one major topic, with a view to answering three questions: What have we learned from recent empirical research? What are the major gaps in present knowledge? How should we go about filling those gaps? When answering the second question, authors were urged to look at the practical requirements of those who must make policy concerning the international economy, and at the opportunities and insights offered by recent developments in pure theory. When answering the third, they were urged to look at developments in econometric technique, newly available data, and work in progress in related fields.
The standard measures of effective protection calculate EPRs by reference to an activity's principal product. In many activities by-products which have a positive economic value are important. Revises the standard measures to allow for the incorporation of by-products and uses an example to illustrate how their exclusion can impact on estimated EPRs.
... a splendid and as yet unrivalled treatment of effective tariffs ...will surely become mandatory reading for all those concerned with international trade theory.'___ The Economic and Social Review .
This paper rehabilitates effective protection. In general equilibrium, the usual definition (the percentage change in value added per unit induced by the tariff structure) corresponds to no economically interesting magnitude. The effective rate of protection for sector j is defined here as the uniform tariff which is equivalent to the actual differentiated tariff structure in its effect on the rents to residual claimants in sector j. This definition applies to general as well as partial equilibrium economic structures, has obvious relevance for political economy models and seems to correspond to the motivation for the early effective protection literature. Like the earlier effective rate formula, the concept is operational using the widely available set of Computable General Equilibrium (CGE) models. An example is provided for the US economy. The numerical results for the old and new concepts are not significantly correlated.