True Protection in “Capital‐rich” and “Capital‐poor” Developing Countries: Some Policy Implications

Abstract

True protection concepts seek to measure the net or relative price effects of commercial policy interventions within a general equilibrium framework. True protection depends on substitutional relationships between sectors within an economy, which are influenced by factor endowments, and the resulting arrangement of factor intensities between the importables, non‐tradables and exportables sectors. Articles by Sjaastad and Clements (1981, 1984) have explored true protection and the incidence of protection for the case where importables are not substitutes for exportables. This case can be applied to “capital‐poor” developing countries. It establishes that the export sector is likely to bear the principal burden of import protection. This article compares and contrasts the results of the “capital‐poor” model with those for a “capital‐rich” model, in which it is the non‐tradable sector on which the principal burden of import protection is likely to fall, i.e. it tends to promote exportables, but not exports.

Citation

Milner, C. (1989), "True Protection in “Capital‐rich” and “Capital‐poor” Developing Countries: Some Policy Implications", Journal of Economic Studies, Vol. 16 No. 4. https://doi.org/10.1108/EUM0000000000134