The objective of this study is to analyze the structural changes in the nominal and effective rate of protection from 1975 to 1990 with preceding study data. As part of an industrial protection policy, trade restrictions generate a difference between the real domestic producer and international price under conditions of free trade. This difference in price over the international price expressed in percentage is the nominal rate of protection, which serves as an indicator of the industrial protection, quantifying the various impacts of protectionist policies. However, there is also a need to draw out the effective rate of protection in analyzing industrial protection. This is because the level of protection for intermediate goods in production is also a significant factor of influence.
As previously identified, this study does not directly draw out the nominal rate of protection for each item, but estimates the time series for the nominal rate of protection, based on the following figures: 1968 estimate figure by Gwangseok Kim and Westphal (1976); 1978 nominal rate of protection by Gwangseok Kim and Seongdeok Hong (1982) based on a modification of Jonghyeon Nam’s 1978 figure (1981); Jeongho Yu’s 1982 nominal rate of protection (1982) and the rate for 1990 (Yu, 1991). Furthermore, the effective rate of protection for seven years (1975, 78, 80, 83, 85, 88, 90) was estimated with the extended time series data for the nominal rate of protection. With this data, shifts in the tendencies of major industries and protection policies according to trade forms were also analyzed.
The extended average nominal rate of protection showed a drastic change for each year, but generally maintained an average higher than 35%, except for a couple of years with slightly higher figures. The effective rate of protection was drawn out using the adjusted nominal rate of protection by industry, through the Balassa and Corden Method.
Based on the extended nominal rate of protection and estimated effective rate of protection, Korea’s system of industrial protection can be explained as the following: First, the agricultural sector has continuously received a high level of protection and is increasing more recently. Second, consumer goods, machinery and transport equipment are getting higher protection compared to other sectors in the manufacturing industry in terms of the stage of processing. Third, second-level intermediate goods are receiving higher protection than first-level goods among the intermediate products as they have a higher process criterion, while durable consumption goods are receiving more protection over non-durable goods. Fourth, Korea’s practical system of industrial protection according to the classification of trade that takes market-orientation and the competitive relation between import and effective rate of protection (as drawn out by the Balassa and Corden Method), puts lower protection on the export industry and NIC while putting higher protection on IC and XIC.
The huge gap in the protection levels among industries implies a need for a policy change to create equal protection of industries in order to boost their international competitiveness. Thus, a more desirable way to enhance local industries’ international competitiveness is by maintaining the exchange rate and price-control policy to stabilize real exchange rate, thus lowering industrial protection through import opening, rather than boosting competitiveness through protection.
명목 및 실효보호율의 구조변화(Structural changes in the nominal and effective rate of protection)
|Series Title; No||정책연구시리즈 / 92-01|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade
Industry and Technology < General
|Holding||KDI; KDI School|