nominal protection

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The proportional price increase in imported goods caused by a tariff. With a proportional tariff rate t, the price of imports inside the country is (1 + t) times their external price. The tariff rate thus measures nominal protection. This is contrasted with effective protection, the proportional increase in value added in the industry producing a good, taking account of tariffs on any imported inputs used in producing it. The more heavily imported inputs are taxed, the less effective protection is given by any rate of nominal protection.

Subjects: Economics.

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