(DP 1997-07) The Net Index of Protection and the Flight from Tradeable Sector

Abstract

We propose the Net Index of Protection that subsumes the Balassa "Net Effective Protection Rate," Michaely's "Net Effective Protection Rate," and Corden's "pure exchange rate protection." Under special circumstances, this depends only on off-the-shelf indicators, the effective protection rate and the real exchange rate, to reflect the resource full among tradeables and between tradeables and nontradeables. We estimate NIP for Manufacturing and subsectors for the period 1991 to 1997 which suggests why domestic capital fled the tradeable sector. We finally derive the exchange rate adjustment required to restore the level of protection accorded sector j when tariffs are being reduced (the iso-protection tradeoff).