Table of contents list of acronyms
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| 4.1. METHODOLOGY The ERP enjoyed by an industry is quantified as follows ERP VA − VAW VAW × 100 … … … (1) where VA = value added at domestic prices VAW = value added at world prices The value added at domestic prices is derived as follows = (1 + ) − (1 + ) … … … (2) where t 0 = import tariff on competing imports to the industry’s output a ij = input – output ratio of the jth input t ij = import tariff on the jth input similarly, the value added at world prices is given by = 1 − … … … (3) The above equations are based on the assumption that domestic prices adjust fully to the import tariffs. Pursell, Khan and Gulzar (2011) argue that in a regime of high tariffs, as is the casein the automotive sector currently, it is possible that domestic prices do not adjust fully to the tariffs. They make a comparison of the prices of the same models in Pakistan and India 46 respectively and conclude that it is likely that implicit nominal protection rates are below the protection available from tariffs, especially in the case of large cars. They attribute the under pricing in relation to that indicated by tariffs due to the presence of substantial excess capacity and depressed demand conditions since 2008. Therefore, they compute the ERPs in two scenarios i) with domestic prices consistent with the tariff structure, the ERPs available workout as 120 percent for assembly of cars, 95 percent for vendors and 104 percent for the integrated process. ii) with domestic prices of vehicles about 90 percent of the world price plus tariff the ERP falls to 48 percent for the integrated process. In effect, we depict the two scenarios in Figure 4.1 – Case I. In scenario 1, the domestic price adjusts fully to the tariff while in Figure 4.1 – Case II the domestic price lies between the world price and the world plus tariff. Our calculations of ERPs are based on two scenarios, first, the domestic price equal to the world price plus tariff and, second, the domestic price equal to 90 percent of the world price plus tariff. We extend the analysis beyond cars and parts to other vehicles. Download 0.77 Mb. Share with your friends:
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