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The Substitution Problem in the Theory of Effective Protection
Author(s) -
Davis Graham
Publication year - 1998
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00105
Subject(s) - substitution (logic) , economics , partial equilibrium , general equilibrium theory , mathematical economics , microeconomics , computer science , programming language
Input substitution theoretically invalidates the resource flow predictions of effective rates of protection calculated in a partial equilibrium framework. Partial equilibrium effective protection analysis, despite this “substitution problem,” has nevertheless quietly settled into the trade economistÃÂÃÂs toolbox. This paper presents a new, transparent review of the substitution problem in effective protection. It finds that partial equilibrium effective protection analysis, although theoretically susceptible to misleading results, is in practice a reasonable estimator of certain short‐run general equilibrium effects of protection.