The Effective

Rate of
Protection

The Effective Rate of Protection measures the

percentage effect of the entire tariff structure on
the value added per unit of output in each industry.
 The Effective Rate of Protection

 Tariff Structure  Value Added

Tariff structure Value added is the
refers to the difference between
relationship among the selling price
tariffs in related and the cost of
industries. intermediate goods.
V = PA - PSa
 The Effective Rate of Protection

ERP = ( V’- V ) / V

 ERP = Effective Rate of Protection

 V’ = Value Added with tariff

 V = Value added with free trade

 The Effective Rate of Protection

ERP = (tf – ati) / (1 – a)

Where tf is the nominal tariff on the

imported finished good, a is the value of
imported inputs as a share of the value of
the final good under free trade, and ti is the
tariff on imported inputs used by the
domestic producers.