The Review of Economics and Statistics Vol. 58 No. 1 1976
An Analysis of the Effect of Production Process Changes on Effective Protection Estimates
Abstract
OVER the course of the last decade, economists have made increased use of the effective protection framework when analyzing the impact of various restrictions to international trade. A key feature of this measure is that it estimates the protection for value added in a production process rather than for product price.' Thus, while the nominal rate of protection relates solely to the final output, the effective rate accounts for the joint influence of trade restrictions on production inputs as well as on the final product. A primary requirement for estimating effective protection is accurate information on the nature and shares of production process inputs. National input-output tables have frequently served as a source for these data, but due to problems in compilation and processing these tables are generally not available until a considerable period after the date to which they apply. As such, effective protection studies which draw upon this information are frequently based on production coefficients over a decade old.2 If production processes have changed considerably in this interval, there exists the possibility that the effective protection rates may be seriously in error. This paper evaluates the direction and magnitude of bias in effective protection estimates due to the use of production data pertaining to a previous period. A separate analysis also investigates the relative importance of two sources of error (i.e., shifts in factor inputs and changes in the value added coefficient). Further, an attempt is made to assess the effect of variances in the age of the production information on the effective rates. While the analysis is confined to U.S. data, it is expected that the results apply equally to other industrial nations.
- DOI
- 10.2307/1936012
- Volume
- 58
- Issue
- 1
- Pages
- 81
- Sources
- openalex crossref