Effective Protection and Intra‐Industry Trade: Some Positive and Normative Issues

The distinction between nominal and effective tariffs (or protection) is well established in the theoretical literature, albeit in the context of the traditional analysis of inter‐industry trade flows. This analysis is based upon assumptions such as product and production homogeneity, non‐increasing returns, armslength trade, and small open economy country conditions. Relaxation of some or all of these assumptions has direct implications for effective protection analysis under any type of trade flows. As is now widely recognised, however, relaxation of these assumptions is also likely to be associated with intra‐industry specialisation and exchange. It is to this wider issue of effective protection analysis in the context of “within‐industry” specialisation (vertical and/or horizontal) and of two‐way trade, that this paper is addressed.