Rate of Effective Protection

The added value to a domestically produced good or service resulting from a tariff that keeps out (or makes more expensive) foreign goods and services. That is, because the tariff make foreign goods and services more expensive than they otherwise would be, domestic goods and services are not forced to cut their own prices, which adds value and results in higher profits.

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The average rate of effective protection (5) was as high as 271 percent in 1963-64 [See Lewis and Guisinger (1968) and Little, Scitovsky and Scott (1970)].

The fact that out of 66 inefficient industries 48 had a very high rate of effective protection, and out of 13 efficient industries 9 were penalised, indicates the negative relationship between efficiency and protection.