The Substitution Problem in the Theory of Effective Protection

Graham Davis

Review of International Economics, 1998, vol. 6, issue 2, 307-20

Abstract: Input substitution theoretically invalidates the resource flow predictions of effective rates of protection calculated in a partial equilibrium framework. Partial equilibrium effective protection analysis, despite this "substitution problem," has nevertheless quietly settled into the trade economist's toolbox. This paper presents a new, transparent review of the substitution problem in effective protection. It finds that partial equilibrium effective protection analysis, although theoretically susceptible to misleading results, is in practice a reasonable estimator of certain short-run general equilibrium effects of protection. Copyright 1998 by Blackwell Publishing Ltd.

Date: 1998
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