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Is It Possible for a Low Nominal Tariff Rate to Understate

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Essay

Is it possible for a low nominal tariff rate to understate the effective rate of protection? What is tariff escalation?


Definitions:

Absolute Purchasing Power Parity

A theory that asserts that in the absence of market frictions, identical goods in different countries should have identical prices when expressed in a common currency.

Transactions Costs

The expenses associated with buying or selling goods and services, including fees, taxes, and other charges.

Absolute Purchasing Power Parity

A theory which asserts that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Identical Products

Goods that are exactly the same in every feature, quality, and specification, allowing them to be interchangeable.

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