© 1988 International Bank for Reconstruction and Development / The World Bank
research-article |
Approximating the Effective Protection Coefficient without Reference to Technological Data
Patrick J. Conway is an assistant professor of economics at the University of North Carolina at Chapel Hill and Malcolm Bale is an economist in the Latin America and the Caribbean Country Department 1 of the World Bank. Research for this study was undertaken while Bale was a staff member of and Conway a consultant to the Country Policy Department of the World Bank. The authors thank Dennis Appleyard, Alfred Field, Kenneth Harling, and Andrea Maneschi for perceptive comments, and Thérèse Bélot for statistical assistance.
When proposals for reform of tariff or subsidy policies are made, attempts to predict the effect on incentives are frequently hampered by the need for input-output technical data. This article develops and illustrates the use of a methodology for approximating effective protection coefficients (EPCs) when such data are unavailable or outdated. It derives the equations which approximate the EPC from statistical analysis of a cross section of existing EPC studies for four agricultural commodities: corn, cotton, rice, and wheat. Informational requirements for computing approximations include the nominal protection coefficients on output and tradable inputs and readily available macroeconomic data. These approximation equations perform well in an out-of-sample test.