# **2. Effective Rates of Protection in Egypt: Cost-share Data Sources and Previous Studies**

Effective rates of protection are measures of the impact on an industry’s or economic sector’s net returns due to border protection. Nominal tariffs are relevant for consumer welfare and the analysis of patterns of consumption. ERPs are relevant for analyzing the impact of commercial policies on incentives for resource allocations. Without making normative assessment of the desirability of interventions in the form of tariffs and subsidies, ERP estimates aid in understanding the effects of these policies on the incentive framework for production, and so provide a quantitative measure of economic signals guiding investments and factor use. In calculating effective rates of protection (ERPs) of industries for any country, there are two technical decisions to make. First, what is the most appropriate level of disaggregation to use? Second, based on the disaggregation level, how does one incorporate non-tariff barriers? Given the information available at the present date for Egypt, the following calculations of ERPs focus mainly on the effects of tariffs and energy subsidies, but ERPs are also presented that adjust for the estimated effects of NTBs for activities where estimates are available.

The question regarding the level of aggregation is addressed using two sources of costshare information at different levels of aggregation. The most detailed cost share data available were obtained for a study by Cassing, et al., which was done for a larger Nathan Associates project on tariff reforms in Egypt for US AID, completed in October 2000. (Hereinafter we will refer to this as the Nathan study.) Although ERPs were reported in this study, the cost share data on which the ERPs were based are reported in greater detail by Nabila Al Iskandarani.<sup>1</sup> These cost-share data cover 20 specific industries in the private sector and 17 industries in the public sector. A list of these industries and their intermediate inputs are found in Annex Table 1. These industries are identified by their 4-digit ISIC code (rev. 3.1).<sup>2</sup> These disaggregated industries served as the basis for estimating ad valorem equivalents of non-tariff barriers, presented in Annex 3. Note that although most of the public industries in the list continue today, they might be much reduced in importance after a decade of economic reforms. Some industries that were in the earlier 1999 list are not found in the latest CAPMAS list of public industries for 2007/2008: household appliances, carpets and rugs, containers and boxes, cutlery and hand tools, agricultural machinery, and pottery.

The other source of cost-share data is the inter-industry intermediate input costs from the latest available Egyptian input-output matrix (2006/2007), supplied by the World Bank office in Cairo. (See Annex Table 2 for a list of industries. The matrix is available upon request.) This particular input-output matrix has 23 industrial sectors, with more disaggregation of energy sectors. In his 2007 report, D. Lederman also uses an inputoutput matrix from 2005 with 21 sectors, but with more detail in some industries, such as agriculture and food, and less in others. (The accompanying Annex Table 2 also includes a list of sectors available to Lederman.)

> 1 Her Masters thesis was completed at the American University in Cairo in spring 2001

> 2 Given the current ISIC version, in some cases the industries reported in Nathan and Al Isakandarani are further disaggregated into more specific industries in the information available from CAPMAS.  See the web site http://www.msrintranet.capmas.gov.eg/pls/fdl/bkr2_e?lang=0&lname=   ECS .

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