This report aims to conduct a positive verification of industrial protection on incentives by calculating for the nominal rate of protection, effective rate of protection and transfer income for the trade industry.
Protecting a local industry refers to the act of prohibiting or restraining imports through tariffs and non-tariff barriers. The effective rate of protection is an analytic instrument developed by economists, used since the mid-1960s to verify the positive impacts of a protection scheme on an industry. In this context, this study closely follows precedents of past studies in order to build a comprehensive understanding of the impacts of protection schemes on individual industries, thus building essential resources for industrial and trade policies.
The effective rate of protection can be obtained through its nominal rate. Past studies have applied identical nominal rates of protection on commodities regardless of its classification as a final commodity or an intermediate good. However, this study has provided separate calculations for intermediate goods and final goods, using them to come up with the effective rate of protection. As a new approach, a separate protection rate reflecting the trade policies’ impact of trade regulation under the term of nominal rate of protection for policies. The idea behind this was that the nominal protection rate can reflect the impacts of other variables besides trade policies.
The study also drew out an operational definition of the nominal rate for the Corden and Balassa methods, as the two have differing perceptions on the concept of effective rate of protection and the handling of non-traded goods. The study also provided resources on legal, actual and potential tariff rates, discussing the criteria for selecting one of them as the nominal rate of protection, and the estimated result for the nominal rate. Furthermore, it also conducted an observation on the characteristics of the Korean system of nominal protection that appeared on the estimate rate. It also drew out its dimensions of transition by observing trends of the 80s.
However, there was a need to make certain modifications on input-output tables before calculating for the effective rate by applying the nominal rate on the table; indirect tax was omitted while input and output amounts were adjusted to meet local price standards. Thus, the report has gone through necessary adjustments to the original goals of the study. In addition, it provided the calculating processes and results by utilizing the adjusted inter-industry tables following the Corden and Balassa methods. For each method, three kinds of effective rate were given. Based on the given results, the study also discussed the structure of effective protection on exclusive sales, including effective protection for domestic sales and exports.
In conclusion, problems of the Korean structure of protection can be discussed from a perspective of international commercial policy or industrial policy. In addition, the study has suggested protection structures to go through reform, in order to be able to provide support for industrial restructuring so as to minimize the damage on the factors of production–labor and capital– and facilitate its smooth flow between industries
산업보호와 유인체계의 왜곡(Distortion in industrial protection and incentives)
1990년 명목 및 실효보호율 추정(Calculation of the nominal and effective rates of protection for 1990)
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|