The ‘true protection’ concept ‐ a comment on Greenaway and Milner

The estimation of ‘true protection’: A comment on the smeets procedure

“…CONCLUSIONS Smeets [1989] does not show that shift parameters are much smaller than suggested by earlier empirical studies. He does in fact show that short-run shift parameters are lower than long-run shift parameters; this is to be expected on a priori grounds and has also been shown by earlier empirical studies.…”

“…The results for the inter-country comparisons in Table 1 in Smeets [1989] and in Table 2 in Greenaway and Milner [1987] are therefore not comparable. Sjaastad and Clements [1981] do in fact report lower short-run shift parameters for Chile, Uruguay, and El Salvador than the long-run estimates reported by Greenaway and Milner [1987].…”

“…The estimation of 'true protection': A comment on the smeets procedure David Smeets [1989] argues that earlier empirical studies, including Greenaway and Milner [1987], have over-estimated shift-parameters and thereby overstated the difference between nominal and true protection. Smeets claims that this over-estimation is primarily due to mis-specification of the basic estimating equation; namely the inclusion of export (strictly exportable) price, and the exclusion of money supply information.…”