Measure and interpretation of effective protection in the presence of high capital costs: evidence from India

Francois M. Ettori

No 873, Policy Research Working Paper Series from The World Bank

Abstract: This paper is derived from a previous working paper prepared within a comprehensive review of India's trade regime and protection policies. One striking feature of India's protection structure has been the very high tariffs and protection on capital goods, thereby harming industrial competitiveness (and export potential) and distorting industrial incentives as they are indicated by Effective Protection Rates (EPRs). This paper presents three main themes. First, it provides a brief refresher on the definition of EPR and its limited interpretation as a measure of the scope for inefficiency or extra-profit resulting from protection, with a simple geometrical representation. In the second part, the paper introduces the notions and formulae of Corrected Effective Protection Rates (CEPR) and Net Effective Protection (NEPR), also with a geometrical representation. Finally, the paper tests the relevance of these notions, and assesses their magnitude -- in the case of India on the basis of a sample of some 60 industrial projects. A brief conclusion summarizes the major findings and draws some tentative conclusions.

Keywords: Globalization and Financial Integration; International Terrorism&Counterterrorism; Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform (search for similar items in EconPapers)
Date: 1992-03-31
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