# Effective Rate of Protection Defined by Equation

Effective Rate of Protection Defined by Equation

Case No. 3

Aij = it is the share of imported input in the total value of imported commodity in the absence of tariff.

Before tariff PJ=1000

Before tariff Pi=500/500V

Tj=40% PJ=1400      =          1000+400

Ti=20% Pi=600         =          500+100

V’=1400-600=800

%up in V = 800-500 = 300/500(100)         = 60%

Aij=50% or .5

(gj) effective rate of protection also depends upon the aij or the share of imported input in the total value of imported commodity.

Effective Rate of Protection Defined by Equation

Gj also depends upon the share of domestic value added in the product price.

Now we explain the aij with the help of examples with change rate.

Pj=1000         tj=40%            Pj=1400

Pi=800           ti=20%            Pi=960

V=200                        V’=1400-960=440

%up in V = 440-200=240

240/200(100)            =120%

Explained

20×800/100=160

800+160=960

Gj=V’-V/V

= 800-500/500          = 300/500      3/5       60%

Case No.1     Gj=tj-aijxti/1-aij           =.4-.5(.2)/1-.5 = 60%

Case No.3     gj= .4-.8x.2/1-.8         = 120%

µi N (0. δ2) with 0 and δ2

µi is distributed normally from 0 to δ2 = Z                        f[x]x-X=M=0] /SE(x)=1]

β2N (β2, δ2/∑xi2)

Z=Standardized Distribution

T=Sample distribution

Z∼N (0,1) population Distribution Z=β22/ δβ2

T∼N (0,1) sample distribution β2∼N(β2, δ2/∑xi2)

T= β22/ SE(β2)

β2-t-x SE(β2)= β2                β2’s internal estimate