SWP493 On Protectionism in the Netherlands World Bank Staff Working Paper No. 493 October 1981 Prepared by: K A Koekkoek, I. Kol and L.B.M. Mennes (Consultants) Economic Analysis and Projections Department Copyright ® 1981 1818 H Street, N W W.,hington, D.C 20433, U.S.A D O N O T HG views and interpretations in this document are those of the authors 3881.5 rhould not be attributed to the World Bank, to its affiliated w57 \izations, or to any individual acting in their behalf no.493 The views and interpretations in this document are those of the authors and should not be attributed to the World Bank. to its affiliated organizations, or to any individual acting in their behalf. WORLD BANK Staff Working Paper No. 493 October 1981 ON PROTECTIONISM IN THE NETHERLANDS This work in progress report is part of an inquiry being undertaken by the World Bank in conjunction with scholars from twelve industrial coun- tries into the penetration of the markets of industrial countries by exports of manufactures from developing countries. The project seeks to establish the shares of industrial country markets held by the developing countries, changes in such shares in the 1970s, and why they vary among industry groups and countries. The aim is to assist developing and industrial countries to improve their policies through a better understanding of trade patterns and protectionist pressures. The paper is introduced by a bird's eye view of developments in indus- try and trade since World War II. Changes in the structure of industrial production as well as shifts in industrial policies due to changing objectives of socio-economic policy are discussed. Trade policies, in particular their protectionist aspects, are considered. Estimates of the level of total effective assistance have been calcu- lated. Total assistance consists of four types of protectionist measures: tariffs, subsidies, taxes and variable levies. These estimates were made for 17 industrial sectors of Dutch manufacturing industry for the years 1970, 1975 and 1976. This corresponds to the level of aggregation of the Nether- lands input-output tables, as they are published by the Central Bureau of Statistics. For the year 1975 similar estimates are also presented for 32 industrial sectors, use being made of an unpublished input-output table. Special attention is given to the role of subsidies in Dutch economic policy. The differences in assistance among sectors are analyzed for each of the available years. This is done with the aid of the three models of poli- tical economy developed by Richard Caves: the adding machine, interest group and national policy models.The paper concludes with a brief summary of the results obtained. The authors want to thank Mr. J. Swank for his computational assist- ance and Miss M. Koffijberg for her skillful typing. Thanks are due to the Netherlands Central Bureau of Statistics for the assistance and cooperation provided in collecting the necessary data. Prepared by: K.A. Koekkoek, J. Kol and L.B.M. Mennes (Consultants) Economic Analysis and Projections Department Copyright c 1981 The World Bank 1818 H Street N.W. Washington, D.C. 20433, U.S.A. Contents Page 1. Introduction 1 1.1. Industrial development after World War II 1 1.2. Trade policy 6 2. The structure of protection 9 2.1. Methodology 9 2.2. Results for 1970, 1975, and 1976 14 2.2.1. Results for 1970, 1975 and 1976: 17 industrial sectors 14 - 2.2.2. Results for 1975: 32 industrial sectors 19 2.3. On the role of subsidies 22 3. Policy models of protection 26 3.1. Methodology 26 3.2. Results for 1970, 1975 and 1976 39 3.2.1. The policy models 39 3.2.2. A selection of variables 48 4. Summary 51 ANNEX I Data sources for the estimation of the effective rates of assistance 53 ANNEX II Description of independent variables in the Policy Models 54 ANNEX III Policy Models: regression results 58 References 75 List of Tables Page Table 1. Development of sector shares in Gross Dogiestic Product for the period 1950 - 1975 2 Table 2. Merchandise exports as a percentage of Gross National Product for the period 1950 - 1975 4 Table 3. Nominal and effective rates of assistance for 17 sectors of Dutch manufacturing industry, 1970 15 Table 4. Nominal and effective rates of assistance for 17 sectors of Dutch manufacturing industry, 1975 16 Table 5. Nominal and effective rates of assistance for 32 sectors of Dutch manufacturing industry, 1976 17 Table 6. Nominal and effective rates of assistance for 32 sectors of Dutch manufacturing industry, 1975 20 Table 7. Summary of hypotheses: Policy models and predicted signs for independent variables 37 Table 8. Summary of regression results: the Adding Machine model 41 Table 9. Summary of regression results: the Interest Group model 43 Table 10. Summary of regression results: the National Policy model 45 Table 11. Summary of regression results: the IBRD Common Set of variables 47 Table 12. Summary of regression results: selection of variables 49 1. Introduction 1.1 Industrial development after World War II. The recovery after World War II was mainly based on export-led growth. To achieve this, the Netherlands remained, more or less by con/ensus, a low-wage country till about the middle of the sixties. The change in the structure of the Dutch economy is presented in figure 1 and table 1. 1/ Table 1 Development of sector shares in Gross Domestic Product for the period 1950-1975, in constant prices of 1970. \ Years 1950 1955 1960 1965 1970 1975 Agriculture 9,9 9,2 9,1 7,3 7,0 7,2 Food processing 6,3 5,6 6,o 5,8 5,8 6,0 Manufacturing 18,5 20,8 23,4 25,4 27,6 25,0 Construction/ Utilities 14,6 15,0 14,o 13,3 13,1 13,6 Services 50,8 49,1 47,4 48,1 46,6 48,4 Calculated from : F. Muller, P.J.J. Lesuis, N.M. Boxhoorn / 27_, p. 115. It can be clearly seen that the manufacturing sector increased its share in the gross domestic product from some eighteen percent in 1950 to more than twenty seven percent in 1970, to decrease thereafter. Table 2 shows the increasing importance, throughout the period 1950-1975, of merchandise exports. Table 2. Merchandise exports as a percentage of Gross National Pro- duct for the period 1950-1975, at current mar'ket prices. 1950 1955 1960 1965 1970 1975 29 34 37 35 38 43 Calculated from Centraal Economisch Plan / 9 7 1/ For a more comprehensive review, see e.g. Wetenschappelijke Raad voor het Regeringsbeleid / 30_/, pp. 20-27, and C.A. van den Beld / 2J_. - 2 - Figure 1 Sector shares in Gross Domestic Product 1950-1975 in constant prices of 1970 cumulative % 100 -AGRICULTURE 901 1 t tWl I 1 1-FOOD PROCESSING 80- -MANUFACTURING 60 _ ,- I I' -I _I __. -CONSTRUCTION, ,~~~~ _ ____ ____r I UTILITIES. II . f fg f f 0 | 0 0 ~~SERVICE 101 1950 1955 1960 1965 1970 1975 years - 3 - The structural characteristics of this development can be summarized in the followlng way 2/: - emphasis on large scale industries - a specialized pattern of production - emphasis on bulk-products rather than differentiated products - intermediate rather than capital goods production - processing rather than engineering capabilities In sum there was a "newly industrializing country" (NIC) type of industrial development. 3/ This development has placed the Dutch economy in a difficult position in more recent years as the Netherlands is no longer a low-wage country. Another factor that led to the erosion of Dutch industry's competitiveness has been the appreciation of the Dutch guilder. This appreciation is mostly due to the fact that the Netherlands, with its large exports of natural gas, has earned high resource rents, particularly since the 1970s increases in the price of petroleum 4/. The government's concern with these developments is reflected in successive memoranda on the state of industry in the Netherlands. 5/ At the beginning of the fifties, issues concerned with recovery and the creation of full employment, against a background of diminishing employment in agriculture and a fast growing population, predominated. Later, as full employment was achieved, other, more qualitative, aspects of industrialization came to the fore. These included concerns with regional dispersion and working conditions. Growing concern with the Netherlands competitive situation culminated in the Memorandum on selective growth in 1976. 6/ Selective growth--meaning that account should be taken of policy constraints on economic growth--was emphasized. The constraints noted reflected objectives related to-environmental conditions, spatial distribution of industry, the international division of labor, and the scarcity of non- renewable resources, in particular energy. The main emphasis in industrial growth thus shifted toward problems of restructuring the Dutch economy, that is, adjusting Dutch industry to increasing international competitiveness, in a stagnating world economy. Restructuring the Dutch economy was moreover, to take place in the context of the relocation of suitable industries to developing countries to facilitate the international division of labor. A special 2/ Wetenschappelijke Raad voor het Regeringsbeleid / 30_/, p. 25. 3/ Wetenschappelijke Raad voor het Regeringsbeleid / 30_/, p. 29. 4/ J. Kol, L.B.M. Mennes / 18_/ , p. 1214. 5/ For a short review, see Ministerie van Economische Zaken / 237/, p. 49/50. 6/ Ministerie van Economische Zaken /23/. - 4 - fund created for this objective. Restructuring the Dutch economy in general was accompanied by substantial public financial support, of all types, for Dutch industry. Total support to Dutch industry in the period 1975-1978 amounted to more than 7 billion guilders (about US$2.9 billion)(see below, section 2.3, for further detail). But in general support to Dutch industry was rather ad hoc and defensive in the seventies, and this was recognized in a new memorandum on industrialisation 7/. In this memorandum the govern- ment declared its intention of henceforth supporting industry more on a sectoral basis and of being more "offensive", that is stimulating those activities that are more in line with the (future) comparative advantage of a highly developed country. 1.2. Trade policy Because industrial policies are often suspected of having a protec- tionist impact, it is of some interest to give an overview of the Dutch attitude toward liberal trade conditions. The trade policy within the EEC is , of course, no longer a national matter, but is decided upon at the Community level 8/. But community decisions are influenced by national views of the member states. Moreover, protection can be pursued by other means than trade policy. Two recent memoranda to Parliament, one on protection in general, the other on the results of the Tokyo-round 9/, give the Dutch government's views on protection. The memorandum on protection starts with a recommen- dation for free trade, modified by infant-industry and strategic minimum output arguments for protection. It sketches the international economic climate with its strong appeal for protection, but stresses the importance of keeping up the developing countries' possibilities of exporting, to increase their effective demand. While protection is thus emphatically rejected, it is several times stressed that adjustment to structural changes in the international division of labour, should be gradual. The Dutch government also wholeheartedly supports selective safe- guards, as advocated by the Community throughout the Tokyo-round nego- tiations. The memorandum on the results of the Tokyo-round indicates the Dutch position vis-a-vis the other Community-members in determining the European Commission's negotiating mandate for the Tokyo-round 10/. It is clearly stated that the Dutch government's starting point has always been that Dutch interests lie more on the export side than on the import side. The government goes on to claim that it has hardly, if ever, been the Netherlands, that within the Community, has "dragged its feet" over further trade liberalisation 11/. 7/ Ministerie van Economische Zaken /247/. 8/ For the scope of action by member countries in the field of trade, see for example A. Borrman, / 3_I._ _ 9/ Ministerie van Economische Zaken / 21i , / 22_7. 10/ Ministerie van Economische Zaken / 22_/, p. 22/23. I1/ In view of the argument that the openness of the Dutch economy naturally leads to favouring free trade, it may be interesting to know that the Dutch Government, in the middle of the seventies, did have second thoughts about the power of this argument, as the Netherlands' trade is mainly (80%) with the EEC and associated countries; see Ministerie van Economische Zaken / 21_I, p. 12. - 5 - Several other policies indicate the Dutch government's stand on pro- tection, although it is difficult to evaluate them quantitatively. Firstly, one may look at the way restructuring policy is implemented. This will be dealt with below in section 2. Secondly, one might try to establish the extent to which non-tariff-barriers are being used. This is a rather obscure field, but it seems that the Netherlands do not belong to the major culprits in this respect 12/. Thirdly, there is the field of government procurement. Here it seems that some change has taken place over the years 13/. Although in the past the government stressed the notion of "value for money" as the leading principle for government procurement, currently the importance of government procurement for stimulating innovative activities has gained more acceptance. Recently, moreover, the government ordered a number of Volvo cars for the police force at the very moment that the Dutch Volvo subsidiary was, once again, in difficulties. Stimulating innovation apparently may give way to maintaining employment. Fourthly, protectionist possibilities still exist in trade policy, because of the, as yet, not complete harmonisation of policy within the EEC. Governments may invoke Article 115 of the Treaty of Rome, the so-called "caoutchouc article", or, more formally, the safeguard clause. This article may be invoked when a country suspects that bilateral arrangements with non- EEC members are being bypassed by imports through another member of the Community. It is necessary to have the Commission's approval for application of Article 115. This is given upon fulfillment of certain conditions 14/. Article 115 implies the monitoring of third country imports that enter a member country via another member country, that is, intra-EEC free flow of trade no longer exists for such imports. If such monitoring leads to proof of trade diversion licences to import may be refused. According to some sources more and more use is made of this loophole 15/. For the Benelux countries application of Article 115 concerns firstly a number of textile products, coming in general, from Eastern Europe or Asia, and secondly a varied collection of other simple products, originating in Eastern Europe, China or Japan 16/. 12/ A recent clear example, though, of the use of non-tariff barriers is given by the fact that the Dutch government has tightened the administrative require- ments for the importation of Japanese cars; see Financial Times / 12_/ p. 4. 13/ Ministerie van Economische Zaken /24_/, p. 49. 14/ See, for these conditions, "Decree of the Commission, no. 80/47/EEG" /11_7. 15/ In- en Uitvoernieuws /14_7, p. 868/869 and /15_7, p. 772. 16/ In- en Uitvoernieuws, / 14_I, p. 876,878; this was the situation halfway through 1980. Application of article 115 for these products was allowed until the end of 1981. The number may have increased in the meantime. Judging from the application of article 115, at that moment, G &ermany, followed by Denmark, is least protectionist by far, while the Benelux, France and Italy are most protectionist. - 6- 2. The structure of protection 2.1. Methodology In this paper the effective rates of assistance include the effects of four separate categories of distortive economic policy measures, viz.: 1. tariffs 2. variable levies 3. domestic taxes cum subsidies 4. export subsidies. 1. the use of tariffs in this context needs no comment. 2. the variable levy is one of the main instruments of the common agri- cultural policy (CAP) of the EEC. Variable levies are used to equate world market prices of importer farm products with the, higher, gua- ranteed European farm prices 17/. This shields the farm sector from world market price influences 18/. At the same time these levies imply negative protection for the food industries, which acquire an important part of their intermediate deliveries from the farm sector. 3. domestic taxes and subsidies also modify the competitive position of domestic producers compared with imported products. The particular role of these taxes and subsidies in this respect depends on the assumption to be made with regard to their impact on domestic prices. 4. export subsidies are another important instrument of the CAP. Export subsidies enable domestic producers, in particular in the farm sector and in the food processing industries, to compete on the world market by compensating for variable levies paid on the imported inputs of these sectors and by outright subsidies. Our point of departure with regard to the price and thus value-added effects of these measures has been the so-called small-country assumption, i.e. the Netherlands cannot exert influence on the world market prices of its own exports and imports. For this reason the price effects of the four policy measures can be described in the following way: 1. Tariffs exert an upward influence on prices in line with the percent- age applied. 2. Variable levies also influence prices upwards. These levies will be treated analogously to tariffs. 3. Domestic taxes and subsidies consist of excise taxes (mainly on to- bacco, mineral oil products and petroJl) and other taxes such as environmental pollution taxes, administrative taxes etc. It must be 17/ In the CAP variable levies relate not only to imports of farm-gate products but also to processed farm products. In the case of the Netherlands, though, variable levies apply mainly to grains. 18/ See e.g. A.J. Yeats /31 /, ch. 5. mentioned here that no account is taken of the price effects of the value-added tax, because this tax is considered to be neutral with regard to the calculation of effective rates of assistance 19/. On subsidies more will be said below. Our assumption is that domestic taxes and subsidies do not influence prices in general, except in cases where these taxes (subsidies are not relevant here) are also levied on imported products. This means that some excise taxes have an upward influence on prices and thus have no effect on the factor remuneration of the particular sector on whose products they are levied. Insofar as other sectors receive intermediate deliveries from these sectors, their input prices will be biased upwards. For all other domestic taxes and subsidies no price effect is assumed. This means that they directly decrease or increase the factor income in the sectors, where they are relevant. 4. Export subsidies are used to equate domestic producer prices with world market prices. This will be reflected in the fact that exports will be valued at world market prices. Taking into account these four protectionist devices we proceed to the calculation of the effective rates of assistance. With the effective rate of assistance we mean the percentage change in sectoral value added due to all four measures combined. The following formula is used in calculating the effective rates of assistance: EP; 1 V where V. = gross value added at factor costs V= gross value added measured at world market prices V is unknown and has to be approximated from the actual situation. Therefore, the value of sectoral output and inputs are expressed at world market prices as presented in the following formula: 19/ See, e.g., L. Gamir /13_7 and R.I. McKinnon / 19 7 -8- EP. = -1 2 X. t x + E _ I + (1+t i)(l+e:j) ii=1 (l+t M(+n i)(+i) nt t a. X + k=t+l i=1 (O+ti)(i+ni) 1+Ek nt nt+1 Xk. k=t+l l=t+1 k where vp. = Effective rate of total assistance of industry j Vj = Gross value added at factor costsof industry j t. = nominal rate of tariff protection of industry j E; = excise taxes as percentage of value of output of industry j X. = domestic output of industry j E. = exports of industry j to third countries (non-EEC) at world market prices X.. = intermediate deliveries of tradables to industry j ni = nominal rate of variable levy protection of industry i (in this case the farm sector) X,. = intermediate deliveries of non-tradables to industry j ,ik = percentage inputs of tradables in non-tradables a 1k = percentage inputs of non-tradables in non-tradables nt+1 = this implies inclusion of the share of value added in non-tradables E:k = all indirecr taxes minus subsidies as a percentage of value of output of non-tradables. - 9 - The following clarifications of the formula may be useful. 1. We have followed the Leith method in assuming that only domestic sales are protected by the tariff system 20/. Domestic sales only are therefore deflated by the tariff. However, as the tariffs on imports are EEC-wide common external tariffs, it is clear that Dutch producers are not only protected on the Dutch market but also on other EEC- markets 21/. So for purposes of effective protection calculation sales to other EEC countries should be added to domestic sales; this implies that only sales to third countries are considered exports. 2. For the non-tradables it is assumed that all indirect taxes and subsidies are reflected in their prices, due to lack of competition from abroad. Non-tradables are treated according to Balassa's method 22/. The idea here is that non-tradables have zero effective protec- tion. Thus the input coefficients of the tradable inputs into non- tradables have to be corrected for the price effects of tariffs. This can be done iteratively of course, but we are satisfied with only one round of correction. Decomposition of effective rates of assistance To get some idea of the different effects of the various policy mea- sures distinguished, we have decomposed the effective rates of assistance into three parts: a) the tariff and levy effect; b) the domestic tax cum subsidy effect; c) the export subsidy effect. In formula: IV 2V 3V EP. = -1+ j+j Vj j where V = V + domestic taxes minus subsidies on output which do not influence output prices + indirect taxes minus subsidies which have an impact on input prices. 20/ See J. Clark Leith /10_7, pp. 596/597 21/ Because of the way in which the Dutch Central Bureau of Statistics registers the import duties collected, an ex-post identification of these duties for various groups of foreign suppliers, i.e. developing countries, is a theo- retically precarious and practically impossible task. 22/ See B. Balassa et.al. /1 7. - 10 - 2 V; = - / domestic taxes minus subsidies which do not influence output prices + indirect taxes minus subsidies which have an impact on input prices_7 - export subsidies 3V. = export subsidies 3 Thus: v. 1 -1 measures the protective effect of tariffs and levies by excluding v 1 tax and subsidy effects and will be. called "effective tariff pro- tection" 2v. 1j measures the protective effect of domestic taxes and subsidies vj via their assumed effects on value added and prices and will be called "effective domestic tax cum subsidy assistance" 3V. represents the protective effect of export subsidies and will 3 vl be called "effective export subsidy assistance". Together these three components add up to total effective assistance. Some additional comments It should be kept in mind that for the Netherlands protection exists at two levels. One is the EEC protection afforded by the common tariff system and the CAP. The other is the national level which is represented by the domestic subsidies + taxes effect. Taxes represent here excise taxes, administrative taxes, taxes on environmental pollution etc. Subsidies represent mainly, but not only, wage subsidies. There are two problems in this connection. One is that probably not all wage subsidies are recorded in the official statistics. This will lead to an underestimate of the total effective assistance because part of these missing subsidies may well be included in the row "other factor income". In that case V- will be underestimated. The other problem is that all other types of subsidies, like investment subsidies, low interest credits and the likes of that are not classified as subsidies in the input-output table. More will be said on the role of subsidies in section 2.3. Finally, it should be stressed that other types of protection, such as quotas for example, are not represented in these estimates. However, we do think that these other types are not very important for the Netherlands, in particular for the years under consideration and at the level of aggrega- tion studied 23/. 23/ See e.g. D.B. Keesing, M. Wolf r 16 7, p. 57. - 11 - 2.2. Results for 1970. 1975 and 1976 2.2.1. Results for 1970, 1975 and 1976: 17 industrial sectors Effective rates of assistance are calculated for the years 1970, 1975 and 1976, for seventeen industrial sectors 24/. The results of the calcula- tions are presented in tables 3, 4 and 5, respectively. In each table nomi- nal tariff protection, total effective assistance and its three components are given. The results for 1970 It is clear that, apart from the food industries, total assistance is mainly based on tariff protection. Domestic tax and subsidy assistance only adds or subtracts something at the margin. Both food sectors have negative effective tariff protection 25/. Only in the case of "Food, based on animal products" is the negative effective tariff protection more than compensated for by the export subsidy effect. Four industries have total assistance of more than twenty percent, viz. "Beverages and tobacco", "Textiles", "Clothing" and "Leather and footwear". Three industries, "Food, based on animal products", "Building materials" and "Metal products and machinery" have total assistance between ten and twenty percent. Together these seven industries account for 35% of gross value added at factor costs in manufacturing industry and for 43% of industrial employment, in 1970. The results for 1975 Again it can be said that total assistance was again mainly based on tariff protection, except for the food industries. Nominal tariff protec- tion generally decreased, apart from minor increases in "Food, based on other products".and "Electrical machinery". The average nominal tariff rate on competing industrial imports declined from 4.4 percent in 1970 to 2.8 percent in 1975. Because imports of petroleum products include oil imports, this sector should be excluded from the comparison. The average nominal tariff rate then declined from 5.6 percent to 4.4 percent. The principal reason for the general decrease was the full implemen- tation of the Kennedy round tariff cuts which took place in the period 1968-1972. Another reason, however is to be found in the way tariff rates were calculated, that is, as duties collected divided by imports from third countries. An unknown part of these imports was more or less duty free in 1975, either because of the generalised system of preferences of the EEC, or because of the gradual abolition of tariffs on industrial imports from EFTA countries 26/ 24/ The calculations are based on input-output tables published by the Dutch CBS. For a number of data, use was made of unpublished material, supplied by the CBS. The precise origin of the data used is given in ANNEX I and the list of references. 25/ This is mainly due to the high variable levy percentage on imported farm products, mainly grains, ad 18.1%. 26/ The fact that in 1975 not all intra-EEC trade was duty free, namely trade between old and new members of the EEC, is completely disregarded in the calculations. As said before, it is only protection against third countries that is calculated. Table 3. Nominal and effective rates of assistance, for 17 sectors of Dutch manufacturing industry, 1970 in percentages Effective domestic Effective Industries Nominal Total Effective tax cum export tariff effective tariff subsidy subsidy protection assistance protection assistance assistance Food, based on animal products 8.5 19.8 -62.1 9.5 72.4 Food, based on other products 3.1 - 5.9 -14.0 2.2 5.9 Beverages and tobacco 24.1 37.0 40.0 - 4.4 1.4 Textiles 11.9 28.8 30.0 - 1.2 _ Clothing 14.1 34.1 35.7 - 1.6 - Leather and footwear 12.3 22.1 23.4 - 1.4 - Wood products 2.4 0.8 2.3 - 1.5 _ Paper and paperproducts 5.0 6.6 7.6 - 1.0 _ Graphic industry and publishing 2.7 0.7 2.9 - 2.2 _ Petroleum products and natural gas 0.2 - 0.5 - o.8 + o.4 _ Chemicals 7.0 7.5 8.1 - o.6 _ Building materials 11.9 18.6 20.5 - 1.9 _ Basic metals 3.8 4.4 5.1 - 0.7 _ Metal products and machinery 7.4 10.0 9.8 0.1 _ Electrical machinery 6.5 8.4 7.9 0.5 _ Transport equipment 6.1 4.9 4.6 0.3 _ Optical industry and products n.e.c. 7.6 7.9 9.3 - 1.4 Table 4. Nominal and effective rates of assistance, for 17 sectors of Dutch manufacturing industry, 1975 in percentages Effective domestic Effective Industries Nominal Total Effective tax cum export tariff effective tariff subsidy subsidy protection assistance protection assistance assistance Food, based on animal products 6.4 42.9 -16.7 1.2 58.4 Food, based on other products 3.8 7.4 1.7 4.o 1.6 Beverages and tobacco 9.9 13.5 16.2 - 3.1 0.4 Textiles 9.7 24.0 23.6 o.4 Clothing 13.2 47.3 48.9 - 1.6 _ Leather and footwear 3.4 3.9 5.4 - 1.5 - Wood products 1.9 0.0 2.1 - 2.0 _ Paper and paperproducts 4.2 5.4 8.1 - 2.7 _ Graphic industry and publishing 1.3 - 1.1 0.7 - 1.8 _ Petroleum products and natural gas 0.1 - O.6 - 0.2 - o.4 _ Chemicals 5.5 6.6 8.5 - 1.8 _ Building materials 5.6 7.4 9.6 - 2.2 _ Basic metals 3.4 3.3 6.1 - 2.8 _ Metal products and machinery 5.0 5.4 6.3 - 0.9 _ Electrical machinery 6.7 8.2 9.6 - 1.4 _ Transport equipment 4.2 4.7 2.5 2.1 _ Optical industry and products n.e.c. 6.1 6.1 7.1 - 1.1 Table 5. Nominal and effective rates of assistance, for 17 sectors of Dutch manufacturing industry, 1976 in perc ntages Effective domestic Effective Industries Nominal Total Effective tax cum export tariff effective tariff subsidy subsidy protection assistance protection assistance assistance Food, based on animal products 5.8 6.9 -52,9 6.4 53.4 Food, based on other products 3.4 0.7 - 9.1 4.8 5.1 Beverages and tobacco 11.2 15.9 17.8 -3.1 1.2 Textiles 8.2 18.3 19.4 -1.2 _ Clothing 11.5 42.3 38.8 3.4 _ Leather and footwear 5.7 1o.4 11.6 -1.1 - Wood products 2.0 o.6 2.4 -1.7 - Paper and paperproducts 4.7 7.0 9.0 -2.0 _ Graphic industry and publishing 1.2 -1.3 0.5 -1.8 _ Petroleum products and natural gas 0.1 -0.5 -0.1 -o.4 _ Chemicals 4.9 6.6 8.5 -1,9 _ Building materials 3.8 4.4 6.5 -2.1 _ Basic metals 3.1 2.8 5.2 -2.4 _ Metal products and machinery 4.8 5.1 5-9 -0.7 _ Electrical machinery 4.3 4.1 5.3 -1.2 _ Transport equipment 5.7 7.1 4.8 2.3 _ Optical industry and products n.e.c. 6.5 5.7 6.7 -1.0 - 15 - For most industries effective assistance also decreased, except for the food industries and for "Clothing". The percentage of variable levies on farm imports decreased faster than the tariff percentage on similar imports 27/. For "Clothing" the explanation is that tariffs on inputs (in particular textiles and chemicals) decreased faster than the average tariffs on "Clothing". The greatest decrease in effective assistance, to be found in "Beverages and tobacco", can be traced to the decrease in nominal tariff protection. In 1975 there were three industries with effective assistance rates of more than twenty percent, viz. "Food, based on animal products", "Tex- tiles' and "Clothing" and one industry with effective assistance between ten and twenty percent, namely "Beverages and tobacco". Together these four industries accounted for eleven percent of industrial gross value added at factor costs, and for seventeen percent of industrial employment. It seems that protection had become relatively more employment directed. The results for 1976 Only a few changes occurred between 1975 and 1976 28/. The main difference can be found in both the food processing industries, for which total effective assistance decreased. This was mainly due to an increase in the percentage of variable levies on imported farm products 29/. The situation for both food industries was more or less comparable with 1970. Furthermore there was a small increase in nominal tariff pro- tection, and therefore total effective assistance, for "Beverages and Tobacco". For "Textiles" the decrease in total effective assistance was caused by a decrease in nominal tariff protection while the opposite applied for "Leather and footwear". Other sectors with decreasing nominal tariff protection and thus decreasing total effective assistance were "Building materials" and "Electrical machinery" 30/. Finally, four industries had an effective rate of assistance of more than ten percent, viz. "Beverage. and tobacco", "Textiles", "Clothing" and "Leather and footwear". Together these four industries accounted for almost seven percent of industrial gross value added at factor costs and for eleven percent of industrial employment. 2.2.2. Results for 1975: 32 industrial sectors While the calculations presented in section 2.2.1. are based on an 27/ The variable levy on imported farm products amounts to 8.3% in 1975. 28/ It should be kept in mind that apart from the EEC preferential scheme and the tariff arrangements between the EEC and EFTA countries no nominal tariff changes have taken place between 1975 and 1976. Other reasons for a change in the ex-post calculated tariff rates may be price variations, product mix changes and rounding errors in the original calculations of the duties collected. 29/ The percentage of variable levies on imported farm products amounts to 18.2% in 1976. 30/ We will restrict our comments to those sectors which are further disaggregated than before. - 16 - input-output table representing thirty four industries, we now present results, based on an input-output table with fifty four sectors of which thirty two are in manufacturing. The results are given in table 6. Of the thirty two industries ten belong to the group of food, beverages and tobacco 12/. Within this group, there is now much more variation with regard to the total effective assistance estimates. It can also be seen that these industries do not benefit from the three types of assistance to the same extent. Export subsidy assistance is mainly provided for "Meat products" and "Milk and dairy products". Domestic subsidy assist- ance is mainly important for the grain processing industry. Furthermore some sectors benefit heavily from tariff protection 31/. The latter applies in particular to "Milk and dairy products" and the grain pro- cessing industry. Not all textile sectors are equally protected. While spinning mills are hardly protected, the other three textile sectors benefit from total effective assistance rates of more than twenty percent. Within the paper industry, paper products are clearly more protected than the paper industry proper. Within the sector "Chemicals" "Rubber products" has an effective assistance of more than ten percent. Finally, within "Transport equipment", the automobile industry turns out to be heavily protected while "Other transport equipment", comprising mainly of shipbuilding and manufacturing of aircraft, is not protected at all. The domestic subsidy assistance in this case applies to shipbuilding only. Altogether fourteen of the thirty two sectors have rates of total effective assistance of more than ten percent. These fourteen sectors account for sixteen percent of industrial gross value added at factor costs and for twenty four percent of industrial employment. If we compare the figures with the corresponding figures in section 2.2.1. we see that the disaggregation of sectors reveals more protection. Again this pro- tection is relatively employment directed. Rates of effective assistance showed considerable differences amone the various sectors. The average rate of assistance declined over the years considered, but the variation among sectors did not g . The ranking of sectors according to the level of assistance was more or less the same for the years 1970 and 1976, but was different in 1975 33/. 31/ This is caused by the variable levies on farm inputs. 32/ Effective rate of assistance: average and variation - S V Y y y 1970 12.1 12.2 101 1975 10.9 13.7 127 1976 8.0 10.0 125 - = average effective rate of assistance y S = root mean square deviation V = coefficient of variation = S /' x 100 33/ The coefficient of the Spearman rank correlation between the rankings in 1970 and 1976 has a value of 0.81,but for the years 1970 and 1975 it is 0.69 and for 1975 and 1976 only 0.62. - 17 - Table 6. Nominal and effective r>toe of esAstance, for 32 sectors of Dutch mufacturig irndustry. 1975 in per entages Effective domestic tN*ctive Adusatries SaILnaL4 Total LlfXctivo tax cu export taiff *ff*ctive tariff subsidy subsidy protection asistance protection assistance assistaZce .Mat products T.0 122,6 33.4 5 6 33,7 i ian drAi qy products 0.0 32,2 -ka.3 -o,6 81 ,o Fish, vegetables and fruit preserves 10.2 29,8 337 -T4,0 0,2 -aia procesair indust:7 0,0 06 -25,4 21,0 3,0 Sugar industry 0,0 -0,9 4.4& 3 o 3,1 Flour products 16,T I&1,9 43,8 -1,9 0,1 Cocoa products 9.9 25,2 28,2 -3,9 q,9 Other food products 1,8 -0,6 -4L,I 2,0 1,5 3overages 9.6 13.0 153, -3,5 0,6 Tobacco 10,5 16,5 19,1 -2,6 _ 3pir .img ills 2.3 k ° 4,8 -O.T weaving mills 11,2 26.7 28T7 -2 0 _ Imitted goods 11,9 3k,3 34,2 0,6 _ Other tactiles t4l 20,0 17,5 2 t _ 1 Clothig y13,2 47,2 I8,7 -i16 _ tsather and foot-.ar 3 4 3.8 I 5.4 -i.5 - 'Wood proCd.ts 1,9 O I 2,2 -2,1 ; y 3,7 S,5 11 9 -335 _ 'sper ;roducts T,L 12,3 1 r -2 i4_ I:raphic Lndustrr =nd ;uolishiag 1,3 -1,? OT I -,3 _ ?e-ro;&un products a=d 1atural gas 0,1 -0,6 -0.2 -0,4 _ Jsic chmica.Ls ITS 6,1 t.T -1,6 - Clas=cal products 7,1 7T8 10.0 -2.3 - Rubber products t72 11.1 13,3 -2,2 - ?u.llir.g materials 5.6 T,4 9.6 -2,2 _ Basic [metals 3,4 3,3 6,1 -2 3 _ Metal products I.I I 9 5,3 -0,9 _ Machine industry 5.1 4,T 5,6 -0,9- - Electrical scaine.-y 6,7 8,2 9,6 -1 ,4- kutomobi. Ie -nrustry 9.5 21,2 22. -5 ,3 Other transport equipment 0,9 1,0 -1 ,9 2,9 Ontical industry and products o.e.c. 6,1 6,i 7,2 12,1 - 18 - 2.3. On the role of subsidies It has already been mentioned that from 1975 onwards more attention has been paid to restructuring the Dutch economy to meet deteriorating industrial competitiveness problems. To this end the government granted all kinds of financial support to industry, ranging from government-guaran- teed loans through government participation in equity capital to subsidies on wages or inyestment or research activities 34/ 35/. Although the policy of supporting industry is now several years old, it is still very difficult to get a clear picture of the types of support, for which industries it has been given, how much has been spent and so on. Few public sources provide information in this field. 36/ The infor- mation from different sources is not always easy to reconcile. Besides, not much sectoral detail is presented; at most 5 or 6 sectors are shown. Several types of support are lumped together. The figures mostly refer to commitments rather than expenditures. The two most important sources of financial support, however, are clearly the Special Financing Arrangement (SFA) and the Support from Employment Funds (SEF). The SFA is implemented by the Netherlands Investment Bank (NIB). The NIB, with slightly more than 50% state participation, specializes in granting long term investment credits at its own risk. In cases where the risk is too great, it may use the SFA, i.e. the request for credits goes to the SFA committee, composed of representatives of the NIB, the Ministry of Finance and the Ministry under whose competence the requesting firm comes. The criteria for application to the SFA are quite vague, being formulated as follows: - there is no other "acceptable" way of obtaining the necessary funds; - the amount required cannot be provided by the firm itself or there are liquidity problems; - the firm is "basically sound". When the request is granted, the NIB provides funds under government guarantee. Only participations and credits are involved. Another application of the SFA is the so-called "improper SFA". The "improper SFA" is applied when the criteria mentioned above are not ful- filled, but support is necessary to avoid sudden large dismissals of labour 34/ This section does not include EEC (CAP) export subsidies referred to in sections 2.1 and 2.2. 35/ It is clear that the grant or subsidy element of these types of support may range from 0 to 100 percent. 36/ The sources we use are: - Parlementaire Subcommissie voor steunverlening individuele bedrijven / 28_/ which is a report on financial support to individual firms by a subcommittee of the Second Chamber of Parliament. This is the most comprehensive report on these matters available. - Ministerie van Economische Zaken / 20_/, / 24_/. - 19 - or to maintain so-called economically valuable production capacity. In this case decisions in the SFA committee are taken by the government representatives only. The amount of credits supplied under the SFA has increased from 50 million guilders ($US 20 million) in 1973 to 750 million guilders (US$ 306 million) in 1978. Altogether some 3 billion guilders ($US 1.2 billion) have been committed under this arrangement over the period 1973- 1978. The sectoral distribution is as follows: Guilders Metal industries 1.000 (incl. shipbuilding, aircraft manufacturing, automobile industry) Food processing industries 450 Textile industry 37/ 400 Paper industry 200 Chemical industry 50 Others (incl. non-industrial sectors) 900 These figures thus refer to guarantees. Actual losses under the SFA, through bankruptcy, have increased from 13 million guilders ($US 5.3 million) in 1973 to 160 million guilders ($US 65.4 million) in 1978, adding up to 300 million guilders ($US 122.6 million) for the whole period. This total may increase with future defaults. The other main source of funds in the seventies was the SEF faci- lity. In this case the government supplied the funds directly from its own budget. The objective of the SEF is to maintain employment and increase the earning capacity of firms having temporary problems. To qualify for funds from this source the problem has to be firm-specific, temporary, and resulting from an unfortunate coincidence of market factors. The quality of the management has to be good, and the firm has to be located in a high unemployment region. Support may be of the following types: credits, loans, guarantees, subsidies. The requests for support from the SEF are administered and judged by an agency in the Ministry of Economic Affairs. The Employment Committee, composed of representatives from the Ministries of Economic Affairs, Social Affairs, Finance and Agriculture and from the Netherlands Restructuring Company 38/ plays an advisory role. The amounts supplied under SEF increased from 90 million guilders ($US36.8 million) in 1974 to about 1 billion ($US408.5million) in 1978. Altogether almost 3 billion guilders ($US 1.2 billion) were committed over this period. This was distributed as follows: 37/ It is not mentioned, in sources of our data. whether the textile industry also includes clothing. It probably does. 38/ The Netherlands Restructuring Company will not be discussed here, because it has no funds of its own. It plays an intermediary role in the restructuring process. - 20 - Guilders Metal industries 2.000 (incl. shipbuilding, aircraft manufacturing, automobile industry) Food processing industries 175 Textile industry 350 Paper industry 50 Chemical industry 130 Other (incl. non-industrial sectors) 300 The results of this type of support are not encouraging. At the end of 1979, one third of the firms that received support from the SEF in the period 1975-1978, had gone bankrupt. A number of smaller facilities also exist. The following are the most interesting. Two facilities, both particularly geared to promoting large, high-risk, projects, where new technology is applied or new products are marketed and it is only after some time that substantial employment stim- uli and strengthening of the economic structure may be expected. One of these facilities supplies credits only, while the other one provides all kinds of financial support. Altogether some 240 million guilders ($US98.2 million) have been committed under the first facility, half of them for the machine-industry, and some 140 million guilders ($US 57.2 million) has been provided under the second facility. As might be expected, the textile industry doen not feature amongst the recipients here. Another facility links restructuring to development co-operation. Here investment premiums are provided when a firm phases out production capacity in the Netherlands and relocates production to a developing country. Between 1975 and 1978, 55 million guilders ($US 22.25 million) were provided, 43 million ($US17.6 million) being in the textile industry and 10 million ($US4.1 million) in the wood industry. Two facilities promote industries and firms with a high value added content. These facilities are intended for sector policy purposes, but it does not always work out that way. Firms in non-qualifying sectors may still qualify. Between 1975 and 1978 850 million guilders ($US 347.3 million) committed for these facilities, of which, surprisingly, some 300 million guilders ($US 122.6 million) went to the textile industry, 200 million ($US 81.7 million) to the paper industry, 100 million ($US 40.9 million) to basic metals, 50 million ($US 21 million) to machinery and electronics and 30 million ($US 12.3 million)to the automobile industry. Shipbuilding also receives separate support. The Ministry of Economic Affairs finances 75% of the losses on shipbuilding orders, amounting to over 100 million guilders ($US40.9 million) in both 1977 and 1978, and the same Ministry subsidizes the interest on longer term export credits of the shipbuilding industry, also amounting to some 100 million ($US40.9 million) every year. However, there has been recent restructuring in shipbuilding with capacity being reduced to fifty percent - 21 - since 1975 39/. There are also some facilities for promoting regional distribution of investment. Finally, there are some facilities in the field of export promotion, e.g. the Matching Fund, which matches, to certain levels, foreign export credit interest subsidies. A varied collection of funds and agencies thus plays a role in adjustment and assistance policies. The criteria for granting relief are lacking, quite vague, or have been changing over time. The effects, for example in terms of employment saved or created are not verifiable, but it seems clear that the financial checks on the funds committed or money spent are insufficient, and the support given on ad hoc grounds in crisis situations seems almost certainly doomed to failure 40/. Finally it should be said that the government has recognized many of these points and is moving towards a less defensive and more forward looking restructuring policy. It will be interesting to see whether it will be able, in practice, to resist supporting employment per se, and backward industries for employment's sake. 3. POLICY MODELS OF PROTECTION 3.1. Methodology Models and variables This chapter deals with the explanation of sectoral differences in assistance rates, following the methodology developed by Caves I 4_I. In his article on the explanation of Canada's tariff structure three models are developed: 1. Adding Machine model 2. Interest Group model 3. National Policy model In this paper two variants of each model are considered. In the first variant of each model the choice of variables made by Caves is followed as closely as is compatible with our data availability. The first variant, therefore, will be referred to as the Caves- variant. In the second variant the reasoning of the particular model is maintained, but the choice of variables had been adapted in a way likely more suitable for the Netherlands. Accbrdingly, this second variant will be referred to as Netherlands variant. Both variants 39/ See Ministerie van Economische Zaken / 25_7, p. 4. 40/ These conclusions can be found in the sources cited above, namely Wetenschappelijke Raad voor het Regeringsbeleid / 30_/, p. 177 and Parlementaire Subcommissie voor steunverlening aan individuele bedrijven / 28_/ pp. 40-53. - 22 - appear under these names in the tables also. Each of the three models, their variants and the corresponding variables are summarized below. A detailed description of the data base can be found in ANNEX II. The variable to be explained The rate of effective assistance was taken, in accordance with Caves 41/, to be the variable that had to be explained: "Because effective rates measure the true net pulls on resource of manifest myopia in the political process". Later on it is stated (p. 293), that the presence of non-tariff barriers including administrative protection "is one reason for modest expectations about the proportion of the variance of tariff rates we could explain". And indeed, in the case of the Netherlands, the figures in section 2.2 indicate the existence of a high rate of export subsidy assistance for the food processing industries, clearly meant in the first place as a compensation for the variable levies on imported agricultural inputs into these sectors. This example points in the direction of the effective rate rather than the nominal rate as the relevant dependent variable. Furthermore, domestic assistance, being an almost negligible (mostly negative) part of total protection in most sectors, nevertheless adds in some cases significantly to tariff protection. This indicates, in line with Caves, that total assistance rather than tariff protection should be the variable to be explained. For these reasons in this paper the rate of effective assistance was taken as the dependent variable, rather than the rate of nominal protection 42/. Nevertheless some regressions were run with the rate of nominal protection as the dependent variable. The Adding Machine Model In the Adding Machine model it is supposed, that protection is given by the government, whose only goal is to maximize the probability of its re-election. In this view the differences in protection or assistance rates among sectors should be attributed to intersectoral differences that affect possible contributions to such re-election. Caves 43/ himself expresses some doubts about the realism of this hy- pothesis: "Infrequent elections mean that the government presents the electorate with a package of measures, in force or intended. The voters cannot disentangle the bundle...". There is room for some unpopular policy measures, therefore, also in the field of assistance granting, if this is an important election issue at all. In the case of the Netherlands this line of reasoning is further complicated by the fact that governments consist of changing coalitions of parties with different rank and files, and further, that an impor- tant part of the protection policy is decided upon at the EEC-level. 41/ R.E. Caves, / 4_, p. 292. 42/ See section 2.1 for this distinction. 43/ R.E. Caves, / 4_/, p. 282. - 23 - Caves distinguishes two main aspects of the Adding Machine effect: 1. The number of votes, that can be won, or, what is perhaps more important, can be prevented from being lost, from the workforce in a particular sector. 2. The publicity effect, on regional and/or economic neighbours of the sector considered. In this way the government also aims at attracting voters from these groups. Caves chooses value added per worker (VAPW) as the proxy represent- ing the number of votes that is at stake. The expected sign of the coef- ficient is negative, because the higher VAPW, the less employment will be saved per unit of protected value added. The publicity element in the Adding Machine model is expressed by Caves with the aid of four variables. Three variables represent a sector's concentration in large firms: the share of the four largest firms in total sales (CR 4); transport costs of a sector's output and hence its natural tendency towards concentration (TRN), a tendency also reflected by a variable representing economies of scale (MSC). The fourth variable relates to an index of regional concentration (GEG). In the Adding Machine model a high concentration in firms or regions is thought to influence negatively the level of assistance. The Caves-variant In the Caves-variant the VAPW variable is maintained. The first concentration variable, CR4, has been replaced, due to lack of data, by a measure of industrial concentration according to the Herfindahl index (HERF). This index measures the dispersion of the total number of firms over size classes. TRN is deleted, because transport costs do not play as important a role in the Netherlands as in Canada. Because of the lack of data the variable MSC could not be measured in Caves' manner and is therefore replaced by another scale-variable, SCALE. The regional concentration index GEG is maintained. The Netherlands-variant According to the reasoning of the Adding Machine model it is the number of votes that counts; votes to be won or votes prevented from being lost. For that reason, perhaps total sectoral employment should be taken as the relevant variable. The amount of employment, however, differs among sectors simply as a result of disaggregation. To illus- trate this for the Netherlands a sector with a small number of employees - such as clothing - may be protected more heavily than a sector such as chemicals, notwithstanding the latter's much larger employment. Two considerations are of importance here. Firstly, protection is generally granted for products rather than for sectors. This implies that in fact the votes should be considered in connection with the employment in a specific product group or sub-sector and not in a sector. But sub- sectors are usually identified with a broader sector: for instance "spinning" is associated with the textile sector. And it is this broader sector, that is thought to be in need of protection. - 24 - 'This brings us to the second point, namely, that it is not only a sector's employment that is considered as potential vote creation, but rather the extent to which the employees are threatened by unemployment. To take account of this aspect, the change in a sector's employment over a 5 year period has been considered relevant. In other words the impor- tance of a sector to the government as a source of votes is increased in the case of a decline in that sector's employment. To this end in the variable EAM, both a sector's employment, and declines in employment are combined. In the Netherlands-variant the concentration of a sector in firms is merely represented by the variable NOF, the number of firms, because it is numbers that count in the Adding Machine model. NOF has a positive expected sign. The variable GEG, the index for regional concentration, is maintained, with a negative sign to be expected. A detailed description of the variables, their sources and units of measurement are to be found in ANNEX II. In this section table 7 contains a summary of the models, the variables and the predicted signs. The Interest Group Model In the Interest Group model it is stressed that economic groups (that is, producers, consumers and the government) experience benefits or losses from a sector's protection. When a sector is protected its producers benefit from its protection, and so do its suppliers, but not its buyers. Consumers will generally oppose protection, governments are likely to favour some tariff protection to increase their income, but generally both will not be interested as to which specific sector is protected. Caves supposes, however, that the consumers' influence to oppose protection will not be very strong. Protection is generally given on a product level with little bearing on the consumers' budget. On the other hand consumers might favour increasing government revenues in this way. This leaves demand for and opposition against,protection in this model with the producers alone. The way they are inclined to seek protection and spend time and money in this process depends on the economic position of the sector. If a sector flourishes, every hour spent in the lobbying process for protection involves high opportunity costs in terms of time lost in the production process. On the other hand, economically weak industries may be inclined to spend a good deal of time and money so as to obtain protection. To what extent a sector's bid for protection is successful depends on that sectors' power in negotiations; among other factors this is strongly influenced by that sector's degree of concentration, that is, the number of firms. The more concentrated in a few firms, the stronger can be the lobby-pressure, Caves supposes. High concentration also diminishes the free-rider problem of firms that leave the trouble of acquiring protection to the large firms nevertheless enjoying the bene- fits. On the other hand, some sectors with a low degree of concentration can be organized in a strong interest group, which may have considerable negotiating power. - 25 - Caves chooses the following variables for negotiating power: CR 4 as in the Adding Machine model, this is the share of the four largest firms in total sales MSC a scale variable, measuring a sector's natural tendency to be concentrated BCR buyers opposition to a sector's protection. The economic situation of a sector is accounted for by four variables by Caves: GRO measures the growth of sales as an expression of the economic well-being of a sector NSP measures the product diversification in a sector, to reflect a sector's vulnerability to competition VAPW value added per worker; the higher VAPW the higher the opportunity cost for lobbying and also the lower the need for protection TRN measures the transport costs of a sector's output, and like MSC gives an indication of that sector's natural tendency to be concentrated. As such it belongs to the first group. More importantly, high transport costs imply a natural protection against foreign competition. The Caves-variant The CR 4 variable is replaced by the Herfindahl index for indus- trial concentration (HERF) as in the Adding Machine model. The MSC variable is again replaced by SCALE, to reflect economies of scale. Both variables, HERF and SCALE, are supposed to have a positive effect on the lobbying process for protection. But according to Caves, the positive expected sign of the HERF-variable has a question mark in this variant, indicating the possibility that highly unconcentrated sectors have been organized in a strong interest group. The variable BCR - for buyers' opposition has been maintained. For the situation of the industry, GRO is maintained and so is VAPW, both with a negative expected sign, as explained above. NSP, an index for product diversification, is not available in the data material; TRN, transport costs, could better be replaced by a variable that measures a sector's mobility (MOB) to express better the idea of natural protection against foreign competition. Unfortunately the data for this variable were also not available. The Netherlands-variant The variables HERF and BCR are maintained. The variable CR4 for industrial concentration measures the share of the four largest firms in total output, while the Herfindahl index measures the concentration of all firms in an industry according to size classes. For that reason - 26 - CR4 is insensitive to whether a sector's output outside the four largest firms stems from a few other big firms or from many small industries. But the Herfindahl index will show less concentration in the latter case. Hence the Herfindahl index is more sensitive to the existence of econo- mies of scale within a sector than CR4. For that reason, when the HERF variable is included, there seems to be only little need for an additional scale variable to represent industrial concentration. A distinction can be made with respect to the kind of assistance available: tariffs or subsidies, to mention the most important elements of assistance. Tariffs, unless they are reviewed yearly, have more of a stock-character, while subsidies correspond more closely to a flow concept. In the case of tariffs therefore, with their more permanent character, there should be a connection with the innate determinants of a sector's comparative advantage, like skill intensity (SKILL), labour intensity, measured here as the ratio of employment to value added IWPVA), and outlays for research and development (R&D). Subsidies, with their more temporary character, should then be connected more with the revealed comparative advantage or performance of an industry, measured for instance by an indicator for growth (GRO) and the rate of return. As tariffs play the most important role in the structure of assistance in the Netherlands shown in section 2.2, the variables SKILL and WPVA were selected in the Netherlands-variant. For the variable R&D no data were available. A detailed description of the variables, their sources and units of measurement are to be found in ANNEX II. Table 7 in this section again contains a summary of the models, the variables and the predicted signs. The National Policy model Caves' National Policy model is meant to take account of national preferences with regard to the industrial structure. Caves states 44/: "We can thus consider what structural traits of manufacturing industries might make them attractive or unattractive to a nationalistic preference function for the output composition of the manufacturing sector". And, on the same page: "To implement such a preference, tariff rates must offset the difference between production costs at home and abroad". According to Caves the preference function with respect to the industrial structure may consist of the following elements, some more connected with national wealth, others with more nationalistic prefer- ences: 44/ R.E. Caves, /4_7, p. 289. - 27 - RPR this variable measures differences in productivity between Canada and its most important partner in trade: the US NPC measures the share of middle class people in a sector's employment to take account of the wish to protect this group VRT defined as the value added share in production. Sectors with high VRT are beneficial to national well-being and hence likely to attract protection. VAPW value added per worker, a variable introduced in this model to reflect the connection of national esteem or prestige with a sector with a high VAPW MSC this scale variable is also meant to reflect national esteem connected with large plants GRO on the same grounds as with the VRT variable fast growing sectors will be protected GEG in this model it is thought to be of advantage for a sector to attract protection, when it is located in one of the richer or economically stronger regions. The Caves-variant In the Netherlands it is very difficult to measure the differences in productivity between domestic producers and foreign competitors. Prin- cipal trading partners vary with products and sectors. Many of the most important trading partners are within the EEC, where protection has been abolished. The import penetration of the Dutch market from outside the EEC (MPNEC) has been chosen as the variable to represent the revealed differences in productivity with trade partners. The expected sign is positive: the higher the market penetration, the more (call for) protec- tion. Protection of the middle class group in employment is thought not to be relevant in the Dutch case. On the other hand the protection of farmers is presumably of some importance. For that reason, a sector's intermediate deliveries from the agricultural sector in relation to production was taken as a variable (FARM) to represent this. The vari- ables VRT and GRO are maintained, and as in previous models, the MSC variable has been replaced by SCALE. With these variables included, it seems superfluous to add the value added per worker (VAPW), while the value added aspect is represented in VRT and the SCALE variable is supposed to take account of the prestige aspect. To approximate the meaning of a regional concentration variable in this model more closely, the variable for regional spread in general (GEG) has been replaced by REGRI, which measures a sector's concentra- tion in relatively strong regions; the expected sign is positive. The Netherlands-variant Instead of measuring revealed differences in productivity with trade partners by foreign import penetration alone (MPNEC), the Dutch - 28 - export position on non-EEC markets should also be taken into account to obtain a more complete picture of a sector's sales. Import penetration from outside the EEC and export performance on non-EEC markets are combined as a ratio to production in the variable CNEC. FARM, VRT, GRO, SCALE and REGRI are maintained in this variant. A variahle to represent labour intensity of production has been added (EINT). In coimection with the predicted positive sign for the variables VRT, GRO and REGRI to reflect a tendency to support flourishing sectors, it could be. expected that labour intensity will have a negative sign, the labour- intensive sectors being among the sectors growing slowly or stagnating. But it is also possible that is is government policy - related to the Adding Machine idea - to protect employment. This is particularly im- portant when employment is located in relatively weak regions. Negative signs for the variables EINT and REGRI are therefore also conceivable. This amounts to saying, that government policy may be to protect strong sectors in strong regions or to do the opposite, or to aim at both results for different sectors. The National Policy model therefore, as formalized here, is not unambiguous with respect to predicted signs. A detailed description of the variables can be found in ANNEX II. A summary of this model is represented in table 7 in this section. IBRD Common Set Within the framework of the IBRD project on market penetration and protection several meetings have been held with all country partici- pants to discuss intermediate results and to coordinate further research. During one of these meetings it was suggested that for all countries par- ticipating in the project, a common set of variables (IBRD Common Set) should be run to explain intersectoral differences in protection as follows: 45/ VAPW Value added per worker. In line with the Adding Machine and Interest Group models the expected sign would be negative, but in the National Policy model a positive sign is thought possible. INSH and EXSH are respectively the import share of domestic consumption and the share of exports in production. In the case of the Netherlands these variables have been replaced by the import penetration from outside the EEC (MPNEC) and by the exports to outside the EEC as a share of production (EXNEC). The predicted signs are positive for MPNEC and negative for EXNEC. NOF Number of firms. According to the Adding Machine model this variable should have a positive sign, but in view of prestige considerations, it should probably have a negative sign in the National Policy model. No decision, therefore, was made with respect to the predicted sign. 45/ See Kym Anderson and Robert E. Baldwin, "The Political Market for Protection in Industrial Countries: Empirical Evidence", World Bank Staff Working Paper (forthcoming 1981) for the results of this exercise. - 29 - NOE Number of employees. Labour could be protected, but labour extensive sectors could also be supported. So no sign predic- tion is given. DNOE The change in the number of employees. The sectors with growing employment might be protected for that reason. But in line with the ambiguity in the National Policy model, a negative sign could also be predicted here, as it seems more likely that protection would be given to curtail employment losses. Specification 45/ In the presentation ofCthe models it has been assumed throughout, implicitly, that it should be tested which model best explains the intersectoraldifferences in assistance rates. However, it could be argued, that presumably various ways of reasoning are followed in the process of acquiring and granting protection. Furthermore, it is likely, that the importance of the various reasons changes over time and among the sectors concerned. Actually, some of the variables proposed, appearing in more than one model, with the same predicted sign, can be regarded as a connection between the models. Another complication in the case of the Netherlands is that part of the protection measures is decided upon at the EC level. Also this sheds some doubt on the assumption, that Dutch production and distribu- tion characteristics of manufacturing sectors would allow for an expla- nation of the intersectoral structure of protection. In fact it could be argued that for this reason it would be preferable to explain only the domestic part of total assistance (i.e. domestic subsidies minus taxes) with the aid of domestic sectoral characteristics. But it has been mentioned before that domestic assistance is of some importance in a few sectors only. Furthermore, it seems reasonable to assume that domestic assistance is rendered to increase protection at the EC level up to a desired degree of total protection. This can take the form of granting subsidies to counteract existing negative protection caused by protected inputs. This is the case in the food processing industries where subsidies compensating for variable levies on agricultural inputs are rendered. And that, not domestically but already at the EC level. In other cases domestically granted subsidies could merely add to already positive EC protection, which might be considered to be too low. In both instances total assistance, not domestic assistance would represent the proper level of protection to be explained. Furthermore, both sides of the regression equations contain variables measured at the same point in time. No attempt has been made to account for the appropriate time lags involved. The latter would 45/ The authors gratefully acknowledge the advice and helpful comments with respect to the regression analysis from Prof. T. Kloek of the Econometric Institute of the Erasmus University Rotterdam. Of course he cannot be held responsible for the analysis. - 30 - Table 7. Summary of hypotheses: Policy models and predicted signs for independent variables Model IndePendent variables and predicted signs ADDING MACHINE Varianti Caves VAPW HERF SCALE GEG Variant Netherlands EAM NOF GEG + +_ INTEREST GROUP Variant Caves HERF SCALE BCR GRO VAPW Variant Netherlands HERF BCR SKILL WPVA NATIONAL POLICY Variant Caves MTNEC FARM TRT GRO SCALE REGRI + + + + + + Variant Netherlands CNEC FARM VRT GRO SC.AL ?EGR.I EINT IBD o S+ + + + + + IBRID Common Set VAPW iMPNEC ELCDEC NOF NOE DNOE (+ ) (+) (-) (+) (+) (+) - 31 - require disentangling relations of the following kind: a rising market penetration through imports evokes more protection with the result that the market penetration goes down, or more ambiguously: grows less fast. More insights into these complicated processes would require more research into the historical background of the granting of protective measures, perhaps even at the product level. Such a time-consuming undertaking not being possible, the three models according to Caves, and the IBRD variant have been tested for each of the years 1970, 1975 and 1976 for the 17 manufacturing sectors. In view of the scarcity of observations a linear form of the relationships was used. A constant term has been added so as to take account of a con- ceivable ceteris paribus rise or decline in assistance rates over time. 3.2 Results for 1970, 1975 and 1976 3.2.1. The policy models The results are examined according to the following criteria: 1. Sign of the estimated coefficient. It will be seen whether the estimated sign is in accordance with its prediction. If this turns out not to be the case, it will be concluded that the original hypothesis as it has been formalized is not supported by empirical results. 2. Variance. The coefficient of determination (R ) is presented, together with its value corrected for degrees of freedom (R72). 3. Significance of the estimations. Significance of the estimated coefficients individually is expressed by the t-ratio's and for the group of coefficients as a whole by the F-statistic. Both indicators will be presented. For each of the models the results are presented separately in tables 8, 9, 10, and 11. These tables give only a summary of the results. A detailed description can be found in ANNEX III. Adding Machine The results for the Adding Machine model are summarized in table 8. Both the results for the Caves-variant and for the Netherlands- variant are presented. In the Caves-variant the signs of the coefficients are the same for the three years considered. But the sign for the indices of sectoral concentration (HERF) are consistently different from the pre- dicted sign. For other variables signs are as expected, but the coef- ficients of determination are low and so is the level of significance. In the Netherlands-variant of the Adding Machine model the variable for sectoral concentration (NOF) gives signs that are opposite - 32 - to the predicted ones, and as in the Caves variant, consistently so for all three years. In the Netherlands variant the coefficients of deter- mination are somewhat higher than in the Caves variant, but significance is low again. With the proviso that the data can be assumed to be adequate (in the sense that they actually measure what they are supposed to measure, and that the specification of the relation is correct with respect to form, time-lag structure etc.), it can be concluded that the empirical evidence does not give very much support to the Adding Machine model. Interest Group The results for the Interest Group model are summarized in table 9. In the Caves-variant the sign of the coefficient for the index of sectoral concentration (HERF) changes over time. Actually, for this variable the predicted sign was +?, because it was thought, that a highly dispensed sector could also exercise a strong influence in the lobby-process, if there was good coordination in a collective organiza- tion. But this does not imply that, given the fair stability in inter- sectoral differences in assistance rates 47/ and in the degree of con- centration, changes in sign are to be expected over the years. Further- more, the coefficients of the scale-variable (SCALE) and value added per worker (VAPW) also show changes in sign over the years, the coeffi- cients of determination are low and so is the level of significance. As in the case of the Adding Machine model the results for the Netherlands-variant are slightly better according to the coefficients of determination. But also here, the signs of the coefficients change: in this case for the variables representing opposition from buyers (BCR) and skill-intensity (SKILL). The variable WPVA has a consistently positive influence, which is significant at the 95% level in one year, when the F-statistic also shows significance at the 95% confidence level. Notwithstanding this relatively significant result for the Netherlands variant in one year, for the model as a whole, the results do not very much support the Interest Group model, with of course the same provisoes as mentioned with the Adding Machine model. 47/ See sections 2.2 and 3.1 - 33 - Table 8. Summary of regression results: the adding machine model Model: ADDING MACHINE Dependent variable: effective rate of assistance Variables 2 -2 Variant Caves Const. VAPW HERF SCALE GEG R R F-stat. Predicted sign - - - _ Results 1970 + 25. _ + _ _ 0.28 0.03 1.15 131 3 1975 + 19. - + - - 0.11 < 0 0.39 3 1976 + 12. - + - - 0.09 < 0 0.29 Variant Netherlands Const. EAM NOF GEG R2 F-stat. Predicted sign + + - Results 1970 + 15 + - - 0.21 0.03 1.16 1975 + 12 + - 0.34 0.19 2.23 1976 + 7 + - - 0.30 0.14 1.88 3 significant at the 90 % confidence level ]1- significant at the 95 % confidence level 31313 significant at the 99 % confidence level - 34 - Table 9. Summary of regression results: the interest group model Model: INTEREST GROUP Dependent variable: effective rate of assistance Variables Variant Caves const. HERF SCALE BCR GRO VAPW R2 F-stat. Predicted sign +? + - - - Results 1970 + 26. + - 0.32 0.02 1.05 m3E 1975 + 26. - + _ _ + 0.23 < 0 o.64 343 1976 + 24. + - - - + 0.35 0.05 1.17 Variant Netherlands const. HERF BCR SKILL WPVA R2 R F-stat. Predicted sign +? - - + Results 1970 - 6. + + - + 0.31 0.09 1.37 1975 - 4. + - - + 0.32 0.10 1.43 1976 - 18. + + + 0.52 0.36 3.26 x significant at the 90 % confidence level mm significant at the 95 % confidence level 3Ex significant at the 99 % confidence level National Policy The regression results for the National Policy model are summarized in table 10. It is striking that in the Caves-variant the signs of the coefficients of the value added share of production (VRT) and growth of sales (GRO) are both negative, contrary to their predicted signs. This applies also to concentration in relatively strong regions (REGRI) which - 35 - is expected to be positively related to protection, but turns out to be the opposite. The variable for the intermediate deliveries from agri- culture (FARM) is positive only in 1975, the year in which the food industries were highly protected. The coefficient for the import pene- tration from outside the EEC is negative in 1970, contrary to expecta- tion. The coefficients of determination are somewhat better than in the previous models but are still rather low; the significance of the estimations remains poor. In the Netherlands-variant of the National Policy model the esti- mated sign of the VRT-variable again differs from the expected sign, being negative and significantly so in 1975. In that year the FARM- variable shows a positive influence, as in the Caves variant. The growth variable (GRO) displays a changing sign pattern. It seems that the variable for the competitive position (CNEC) performs somewhat better than the variables for the import penetration (MPNEC) in the Caves-variant. In the Netherlands-variant the labour-intensity variable (EINT) is consistently positive; this may indicate that labour is pro- tected rather than labour-extensive production. As in the previous variant the concentration in rich regions (REGRI) shows a consistently negative sign; this may even point in the direction of protection of poor regions. In connection with the sign expectations in the Netherlands variant of this model it has already been noted that government behav- ior might be ambiguous in the sense that strong sectors would be pro- tected but that weak sectors would attract protection at the same time. The results for the National Policy model point in the direction of the latter, namely protection of economically weak sectors in depressed regions, but there is also some evidence for the opposite. The results of the Netherlands variant seem to indicate that sectors characterised by economies of scale (SCALE) are protected. This result is supported by positive signs for industrial concentration in previous models. This would be in line with the observation in section 1.3 that after World War II industrial development in the Netherlands was characterised by an emphasis on large scale industries. For the National Policy model as a whole the changes in signs are too frequent and the level of significance is generally too poor in both variants to give much support to the model as it has been specified. - 36 - Table10. Summary of regression results: the national policy model Model: NATIONAL POLICY Dependent variable: effective rate of assistance Variables Variant Caves Const. MPNEC FARM VRT GRO SCALE REGRI R R F-stat. Predicted sign + + + + + + Results 1:970 + 38. - _ _ _ _ - 0.36 < O 0.94 1975 + 36. + + _ _ + - o.60 0.36 2.51 if 1976 + 30. + - - - + - 0.40 0.04 1.12 Vtariant Netherlands Const. CNEC FARM VRT GRO SCALE REGRI EINT R2 R F-stat Predicted sign - + + + + + + Results 1970 + 20. - + - - + - + 0.37 < 0 0.75 1975 + 22. - + - + + - + 0.72 0.51 3.35 lEN i}m 1976 + 18. - - - + + - + 0.54 0.19 1.54 ~ significant at the 90 % confidence level mm significant at the 95 % confidence level iii significant at the 99 % confidence level - 37 - IBRD Common Set The results for the IBRD Common Set are represented in table 11. It is striking that the coefficients for the import penetration (MPNEC) and export performance (EXNEC) both show consistently the opposite of the expected signs. A simple explanation suggests that the more sectors are protected, the less foreign competition they experience. But then foreign competition should be regarded as a result of protection and does not give an explanation of it. It seems more reasonable to assume that foreign competition is likely to play a role as a reason for protection. A more complicated lag-structure than that assumed seem likely. It is conceivable that protection succeeded in hampering import penetration. What is measured would be the result of this process. But, if such a process were to occur, it would cover years in which the intended reduction in import penetration would not yet have been realized. In those years assistance is built up to increase pro- tection against foreign competition. In such years the results would show signs for import penetration and export performance as expected. As the present results refer to three years out of seven years, it is unlikely that these would be the years in which such a - as yet hypothetical - process would have come to an end. This observation is underlined by preliminary calculations, where instead of import penetration from outside the EEC only import penetration from develo- ping countries, or the increase in import penetration has been taken as an explanatory variable. Import penetration variables, contrary to expectations, consistently had negative signs. This notwithstanding the relatively satisfactory values of the coefficients of determination it is doubtful whether much value can be attached to the explanatory power of this group of variables. - 38 - Table 11. Summary of regression results: IBRD Common Set of variables Model: IBRD Common Set Dependent variable: effective rate of assistance Variables 2 -_2 Const. VAPW HPNEC EXNEC NOF NOE DNOE R R F-stat. Predicted sign ( N) (+) (-) (+) (+) (:) Results 1970 + 30. - - + - - - 0.50 0.19 1.64 ME I n 1975 +6. - _ + _ + + 0.35 <0 0.88 , 1976 0 - _ + _ - + 0.70 0.51 3.82 JUEHE .o x significant at the 90 % confidence level *i significant at the 95 % confidence level i^ significant at the 99 % confidence level Conclusion with respect to the policy models The results presented thus far do not really support hypotheses about causes of intersectoral differences in assistance-rates as expressed in the policy models 48/. As stated before, this however needs some qua- lifications: the conclusion should be regarded as drawn with respect to the specification of the models and with respect to the kind of data used. That is, the form of the relationship, the specification of the time lags, the choice of the variables representing the elements of the hypotheses and the data chosen to measure these variables, may be each in itself more or less inappropriate to test the hypotheses. 48/ This conclusion can be extended to the results with nominal protection rather than effective assistance as the dependent variable. These results, represented in ANNEX III, indicate that for all models, except Adding Machine, R2 and t-ratio's improved somewhat, but that signs of coefficient deviated at least as much from expectations as in the results for effective assistance. The same conclusion, i.e. only little support for the policy models, can also be drawn from calcula- tions for the 32-sector case in the year 1975. Because of the incom- pleteness of data at this level of disaggregation, these calculations, however, are only preliminary. - 39 - 3.2.2. Selection of variables Notwithstanding the rather negative conclusion of the preceding section about the policy models, the regression results reveal some interesting features about a number of variables. In connection with the National Policy model, as already mentioned, there is some evidence, that large scale industries attract some protection. There seems to be even more support for another observation, namely that weak sectors are protected especially when located in eco- nomically weak regions. The following point in that direction. In the Adding Machine model the variable value added per worker (VAPW) shows a consistently negative sign in the Caves-variant, while, for the variable for employment threatened (EAM) a positive coefficient is found in all results for the Netherlands-variant, where it is signi- ficant or close to it. In the Interest Group model the growth variable (GRO) shows a negative sign in the Caves-variant and worker per value added (WPVA) shows a positive sign in the Netherlands-variant and is significant or close to it. In the National Policy model the variable GRO is negative in the Caves-variant, while in the Netherlands-variant the value added variable (VRT) is negative and sometimes significant. Furthermore labour inten- sity (EINT) has a positive sign. In both variants concentration in rich regions has a negative influence on assistance, as indicated by the negative sign for the variable REGRI. As stated before, this may indi- cate that concentration in poor regions (REGPO) is favourable to attract- ing assistance rather than concentration in rich regions. From the results for the National Policy model it can further be concluded that the variable FARM only has some significance in 1975, which is the only year of the three considered with considerable assist- ance for the food industry. The slowly growing sectors being mostly the relatively labour intensive ones and vice-versa, it is interesting to select some variables representing labour intensity in one form or another, and the concen- tration in poor regions. For the representation of labour intensity the variable WPVA (worker per value added) was chosen rather than EAM, because the latter turned out to be less correlated with the dependent variable and more with the explanatory variable REGPO, which is the appropriate variable for the concentration in relatively weak regions. In addition to this the variable FARM was selected to take account of the high protection of the food-industries in 1975. The results of the exercises with this selection of variables are summarized in table 12. - 40 - Table 12. S-mary of regression results: selection of variables Const. WPVA FARM REGPO n R2 2 F-stat. Predicted sign + + + 17 Results 1970 - 4.92 + + + 0.30 0.14 1.89 IE 1975 -16,33 + + + 0.79 0.74 16.06 N3E 3IE3f 3E3E 1E3E 536E 1976 -io.0o4 + + + 0.52 o.4o 4.62 I X B~~~~~~~~~~~~~EE E3E3 2 - Const. WPVA REGPO n R R Predicted sign + + 14 Results 1970 - 8.18 + + 0.60 0.53 8.15 34E i.KME 1975 -19.40 + + 0.76 0.72 17.73 3E3-3E VE3E3E 3E3EKM 1976 -13.07 + + 0.68 0.62 11.61 sg i H3QE h 9E m significant at the 90 % confidence level *.m significant at the 95 % confidence level ss significant at the 99 % confidence level - 41 - Table 12 indicates that the variables WPVA and REGPO give a reasonably good explanation for the intersectoral differences in assistance rates, conforming with the predicted signs, being con- sistent over the years, and having significant values for the coefficients of determination. This observation holds less for 1970, but all variants of the policy models performed poorly for this year. The variable FARM adds some explanation for the year 1975, when the food industry was heavily protected. The strong performance of the WPVA variable reinforces the observation in section 2.2 that protection seems to be employment directed. In conclusion, although there was some evidence that firms with economies of scale are protected in the National Policy model - an observation in line with the process of industrialisation in the Netherlands after World War II - the results of this section, given the selection of variables, indicate that protection in the seventies was positively associated with labour intensive pro- duction and location in depressed areas. - 42 - 4. Summary The rates of effective assistance in 17 industrial sectors in the Netherlands were estimated for 1970, 1975 and 1976. Assistance included the effects of four categories of distortive economic policies: tariffs, subsidies, taxes and variable levies. The EEC as a whole was taken as the protected market in calculating the rates of effective assistance. Non-tradables were treated according to Balassa's method. The results probably underestimate real effective assistance to some extent, because not all subsidies could be taken into account, due to lack of data. The results show that the share of manufacturing industry output that had a rate of effective assistance of more than 10 percent gradually fell over the years. The number of sectors with a rate of effective assistance of more than 10 percent amounted to 7 out of 17 in 1970 but was only 4 in 1975 and 1976. The share of these sectors in gross value added of total manufacturing decreased from 35 percent in 1970, to 11 percent in 1975 and it was only 7 percent in 1976. The shares of these sectors in total employment in manufacturing industry were higher, but also fell from 43 percent in 1970 to 17 percent in 1975 and 11 percent in 1976. Except in food processing, total assistance mainly consisted of tariff protection. The average rate of effective assistance clearly declined, falling from 12 percent in 1970 to 11 percent in 1975 and 8 percent in 1976. In all the-three years considered, food products, beverages and tobacco, textiles and clothing were among the most protected sectors. Rates of effective assistance were also calculated for 32 indus- trial sectors for 1975. The results show much more variation among sectors in total effective assistance. This holds in particular for the group of food, beverages and tobacco industries. The disaggregation of sectors suggested that a larger share of manufacturing industry - 17 sectors had effective assistance of more than 10 percent. Fourteen of the 32 sectors had rates of total effective assistance of more than 10 percent. These 14 sectors accounted for 16 percent of gross value added and 24 percent of employment in Dutch manufacturing industry in 1975. The differences in protection among sectors have been analyzed according to the adding machine, interest group and national policy models. In addition a number of regressions were run using variables which seemed more appropriate for the Netherlands and a set common to this group of studies. The performance of the various models or sets of variables has been judged by three criteria: whether the regression coefficients showed the expected sign, the levels of significance of the estimations and the values of the coefficients of determination. The results obtained give only limited support to the Caves models in explaining intersectoral differences in effective assistance - 43 - in Dutch manufacturing industry. If variables which seem more appropriate for the case of the Netherlands are used, the results improve somewhat, but still do not really support the models. The "common" variables perform somewhat better with respect to the coefficients of determination.. The signs of the estimated coefficients are, however, for some crucial variables opposite to those expected signs. The variables that give the best results represent a sector's labour intensity and its degree of concentration in poor regions: thus in Dutch manufacturing industry more effective assistance is given to rela- tively labour intensive sectors located in relatively depressed areas, - 44 - ANNEX I. DATA SOURCES FOR THE ESTIMATION OF THE EFFECTIVE RATES OF ASSISTANCE For the calculation of the effective rates of assistance use has been made of the input-output_tables published by the Dutch Central Bureau of Statistics (CBS) / 5, 6 _. Unpublished data, kindly provided by the CBS, were also used. The published data concern: Vi : wage costs plus depreciation plus other income X_ : domestic output Ej : exports, valued at world market prices X.'j : intermediate deliveries of tradables Xkj : intermediate deliveries of non-tradables Xj, KX, Xkj were all valued at producers' prices -k : indirect taxes minus subsidies as a percentage of the value of output of non-tradables a.ik a"M : percentage inputs of tradables. and non-tradables respectively in non-tradables The. data provided by the CBS were: ti : nominal rate of tariff protection; t is calculated as duties collected divided by similar lpmorts from third countries ni : nominal rate of variable levy protection; ni is calculated as levies collected divided by competing farm imports from third countries Ej : excise taxes as a percentage of the value of output An extended input-output table for 1975 for 54 sectors, was provided by the CBS. - 45 - ANNEX II. DESCRIPTION OF INDEPENDENT VARIABLES IN THE POLICY MODELS Twenty independent variables were used in the policy models to explain the intersectoral differences in effective rates of assistance. Variable Number Description Unit of Source code measurement name X 1 Total sales mln. Dfl. CBS input- current prices output tables /-5 7/-6 7 GRO X2 Change in total percentages see X / 2sales (X 1); 1 average over latest 5 years X 3 Production mln. Dfl. see X1 current prices X 5 Value added mln. Dfl. see X depreciation + current prices wage costs + other income VRT x5/X3 Value added in - see X and X relation to 3 production X-7 Domestic inter- mln. Dfl. see X !nediate delive- current prices ries from agri- culture FARM x7/X3 Intermediate - see X and X7 deliveries3 from agriculture in relation to production X8 Sum of a sectors' mln. Dfl. see X intermediate current prices deliveries to those other sec- tors, that indi- vidually account for more than 5% of the sectors total intermedi- ate deliveries ( i n (x 8 =1!i where &. . = a.. onily if i#Oj and a.. > 0.05 ~ a..) 3=1 3 131 j=1 1 - 46 - ANNEX II (ctd) Variable Number Description Unit of Source code measurement name X9 A sectors' mln. Dfl. see X total inter- current prices mediate deliveries n (X9 = E a..) j=1 l1 BCR X8/X9 Buyers' concen- tration - see X and X9 X17 Imports from mln. Dfl. World Bank/ outside EC current prices OECD X18 Domestic con- mln. Dfl. see X 1 sumption current prices MPNEC X17 /X18 Marketpenetra- -see X 17and 17 18 tion from x17 outside the EC CNEC X19 Change in Dutch percentage Report /1 7 7 export penetra- - - tion in non-EC markets minus change in non-EC penetration in the Dutch market; Expressed as a percentage of production X20 Exports to non-EC mln. Dfl. World Bank/ markets current prices OECD EXNEC X20 /X3 Exports to non- percentage See X and X EC markets in relation to production X25 Employment; 1000 manyears CBS /7 7 `8 7 volume WPVA X25 /X Employment in 1000 manyears/ see X and 25 ~ relation to mln. Dfl. 25 value added VAPW X /X25 Value added in mln. Dfl./ see X and 5 25 relation to 1000 manyears 2 employment - 47 - ANNEX II (ctd) Variable Number Description Unit of Source code measurement name NOE X26 Employment; 1000 persons CBS / 7 7 number of employees DNOE X27 Change in percentage see X26 employment. average change in number of employees (X26) over the past 5 years EAM X26xX27 Index of vulne- index see X26 and rable employment. 1000 persons x27 Measured as number of employ- ees multiplied by its change in absolute terms, if this change is a decline of more than 1% per annum SKILL x29 Skill intensity percent.age CBS /I7 7 of employment measured as share of employees with semi-higher and higher degree of education EINT X25 /X3 Labour intensity 1000 manyears/ see X3and of production mln. Dfl. X25 NOF X32 Number of firms - Report / 29 7 HERF x33 Industrial con- index See X26 and centration; x32 measured accor- ding to the Herfindahl-index SCALE x34 persons employed percentage See X26 in firms with 500 and more employees in percent of total employment in the sector - 48 - _ABmX II (cta) Variable Number Description Unit of Source code measurement name GEG X35 Regional con- index Report / 26 7 centration of firms accor- ding to the Theil index; REGPO x37 Regional con- percentage See X centration of 35 firms in relatively weak regions. Measured as percen- tage of employment in these regions REGRI X38 Regional concen- percentage See X tration of firms in relatively strong regions. Measured as percentage of em=loyment in these regions - 49 - ANNEX III. POLICY MODELS OF PROTECTION: REGRESSION RESULTS Unless stated otherwise the dependent variable is the rate of effective assistance. However, some results also use the rate of nominal protection as the dependent variable. These results refer to the year 1975. The t-ratios indicate the confidence interval: x significant at the 90% confidence level mm significant at the 95% confidence level xxx significant at the 99% confidence level - 50 - ANNEX III (ctd) POLICY MODELS OF PROTECTION: REGRESSION RESULTS ADDING MACHINE Variables R2 -2 F-stat Variant Caves Const. VAPW HERF SCALE GEG predicted sign Results 1970 +24.84 -0.53 +394.4 -o0.14 -3.46 0.28 0.03 1.15 t-stat (3.29)N"* (1-85)* (1.56) (0.91) (0.56) 1975 +18.91 -0.13 +458.7 -0o04 -7.59 0.11 < 0 0.39 t-stat (1.89)" (0.76) (o.65) (0.23) (0.92) 1976 +12.17 -0.02 +234.5 -0.09 -1.54 o.og < 0 0.29 t-stat (2.10)* (0.73) (o.47) (0.62) (0.27) R2 R2 F-stat. Variant Netherlands Const. EAM NOF GEG predicted sign + + - Results 1970 +15.22 +o.o6 -o.oo0 -6.86 0.21 0.03 1.16 t-stat (2.35)K (1.50) (1.70) (1.14) 1975 +11.68 +0.07 -0.006 -6.98 0.34 o.19 2.23 t-stat (2.18)K (1.29) (1.28) (1-57) 1976 +7-25 +0.05 -o.0oo4 -2.84 0.30 o014 1.88 t-stat (1.33) (2.23)' (1.03) (0.68) - 51 - ANNEX III (ctd) POLICY MODELS OF PROTECTION: REGRESSION RESULTS. INTEREST GROUP Variables R2 R F-stat Variant Caves Const HERF SCALE BCR GRO VAPW predicted sign +? + - - - Results 1970 +25.74 +635.0 -0.12 -0.05 -0.53 -0.27 0.32 0.02 1.05 t-stat (3.11)' (1.31) (0.79) (0.39) (o.88) (o.88) 1975 +25.98 -216.6 +O.p3 -0.16 -0.98 +0.07 0.23 < 0 o.64 t-stat (2.20)" (0.38) (0.14) (o.86) (o.98) (0.45) 1976 +23.37 +51.66 -o.o4 -0.11 -0.98 +0.01 0.35 0.05 1.17 t-stat (3.13)"K* (0.14) (0.27) (0.98) (1.47) (0.35) Variant Netherlands Const. HERF BCR SKILL WPVA R2 tO F-stat. predicted sign +? - - + Results 1970 -5.54 +230.1 +0.02 -0.90 +410.8 0.31 0.09 1.37 t-stat (0.27) (0-93) (0.14) (0.53) (1.46) 1975 -4.12 +68.29 -0.11 -o0o4 +792.8 0.32 0.10 1.43 t-stat (0.17) (o.60) (c.67) (0 03) (1.43) 1976 -18.33 +259.8 -0.05 +0.42 +1102.6 0.52 0.36 3.26 t-stat (1.14) (1.47) (0.51) (O.41) (2.58)N NH1 - 52 - ABM III (ctd) POLICY o40J Of PTOTZCTO: RsRMBIOW RWULn5 DATIOR^L POLUCS Variables R2 2 ?-stat. 'aidA= CA const XP7EC AM VFT GPO SCALZ RJGaI predicted sign + + + ' + + Results 1970 +38.23 -0.36 -6.8i -28.02 -0.34 -o.o6 -0.31 0.36 < o 0.94 t-st-t (2.14)' (1.04) (0.31) (0.77) (0.82) (0-34) (1.11) 1975 .35.6i .0.21 +29.92 -54.55 -o.66 +0.04 -0.29 0.60 0.36 2.51 t-.tat (1.91) (0.79) (1.33) (-1.34) (-1.1i) (0.28) (-i.11) 1976 .29-86 .0.17 -X4.79 _40.26 -0O.70 +0.02 -0.15 0.40 0.04 1.12 t-stat (1,75) (0.74) (0.71) (1.05) (1.13) (0.17) (0.57) variajnt YLtUarsL.nd Conast CEC FARM VRT amO SCALZ 2EGRI 2I prtdactsd sign - + + + 4 . + Resul.8 1970 .20.31 -0.58 +2.79 -40.93 -0.29 -0.01 -0.24 +609.4 0.37 < 0 0.75 t-stat (0.91) (0.50) (0.11) (O.76) (0.61) (0.49) (0.75) 'j.66) 1975 +21.70 -0.17 .29.56 -139.7 +0.33 +O.i4 -0.34 +3362.5 0.72 0.51 3.35 t-stat (1.20) (0.21) (1.54) (2.73)10 (1.08) (0.94) (2.114)' (1.46) - 1976 +17.82 -O.66 -15.75 -93.66 +0.46 .0.14 -0.26 +2233.7 0.54 0.19 1.54 t-stat (1.02) (1.32) (0.88) (1.77) (0.53) (0.95) (1.18) (1.14) - 53 - ATIhNT-E -Il (-ctsd) POLICY MCDELS GF PROTECTION. REGRESSION RESIFLTS IBRD Cc=orn Set Variables 2 F-stat Oonst. VAPw ?'PNEC W=-C NOF NOZ DNO_ predi^tLed Sign'(\ + _ + + _ Results 1970 +29 68 -0.24 -0-85 +o.66 -o.oo6 -0.04 -0.09 0.50 0.19 1.64 t-stat (2.61)x ( 2.11)* (2.17)- (1.50) (1.02) (0.41) (0.05) 1975 +5.56 -0.01 -0.20 +0.30 -0.003 +0.01 +2.48 0.35 < 0 0.88 t-sTIat (0.E9) (o-47) (0.54) (o.58) (0-42) (0.09) (1.92)" 1976 +o.o6 -o-.oo -C.o6 +0.21 -0-001 -0-001 +2.93 ^.70 0.5D 3.82 t-stat (0.01) (0.40i (0.34) (0.95) (0.19) (o.o6) (4.25) ... ii- - 54 - AN=C. ZIZ (ctd) POLICY MODELS OF PROTECTION: ;1EG2SSION RESMLTS The results on this page of ANME III refer to regression results vith nominal tariff mrotection as var:able to be explained, in contrast With the otner results in this annex, where effective total orotection 1S the dependent variable. The results refer to the year 1975 ADDING MACEIIIE Variables 2 -2 F-stat. Variant Caves Const VA-W E;ERF SCALE GEG predicted sign - - - - results 1975 +7.76 -0.05 +188.9 -0.003 -2.47 0.31 0.09 1 .38 t-stat (3,79)*Iim (1.56) (1.31) (o.09) (1.46) variant Nezherlands Const EAM NOF GEG predicted sign + + - results 1975 +4.87 +0.02 -0.002 -1.66 0.57 0.47 5.64 t-stat (3 48)3" (3.73)'fL* (-1.70) (1.62) _ |rSTY EST GROu? R ! F-stat varsa-n- Caves Const E SCALE BCR GRO VA.W I predicted slgr. ? + - - ! -esults 1975 +6.68 +0.42 +C.021 +0.004 -0.19 -0.005 0.24 < 0 0.71 t-stat (2.47)3 (0.003) (0.42) (0.10) (0.8L) (0 i4)! I variant Netherlands Const E:FL 3C 8R SrIl WFVA predicted sig- +? - _ + I results 1975 -2. 81 -9.04 +0.02 +0.32 +245.4 0.36 O . l4 1.67 t-stat (0.52) (0.35) (0.47) (0.91) (1 95)K _ _ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~R-Stat NATIONAL POLICY variant Caves Const MPNEC FARM VRT GRO SCALE REGRI predicted sign + + + + + + results 1975 +10_79 +o.o. -2-05 -11.19 -0.24 +0.oL -o.10 0.L4 0.10 1.30 t-stat (2.10)" (1.08) (0.33) (1.00) (1.45) (0.92) (1.34) variant Netherlands Const CIIEC FARM VP,T GtO SCALE RER lI NT predicted sign - + + + + + results 1975 +10 55 + 0-13 -3.78 -28.31 +0.04 +o.oL -C012 +617.5 0.47 o,o6 1.1i t-stat (1.81) (0.48) (0.61) (1.72) (0.16) (0.85) (1.63) (1.22) 73R Ccrcor. Set I R F-sta Ccnst VAFW MPNEC ZCJEC NOF NOE DNOE predicted sigr () (+) (-) (+) ±+) ) results 1975 +2.36 -C.005 -0.01 .C.12 0-.02 +0.03 +0.67 o.60 0.36 .51 o1.151 (1.15) (O-iL) (1.25) )1.55) (1.27) (2.86)" - 55 - ANNEX III (ctd) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Selected variables 2 -2 -Const WPVA FARM REGPO n R F-stat predicted sign + + + 17 Results 1970 -4.92 +313.8 +10.40 +0.30 0.30 0-14 t.89 t-stat (o.64) (0.81)^ (o.64) (0.72) 1975 -16.33 +678.9 +54.67 +0.64 0.79 0.74 16.o6 t-stat (3.18)KK (3.61)K" (5.15)" (2.81)" KKKs 1976 -10.04 +583.1 +2.39 +o.48 0.52 0-40 4.62 t-stat (1-83)" (2-39)"X (0.20) (1.77)' *m Const WPVA REGPO n R B F-stat predicted sign + + 14 Results 1970 -8-18 +357.1 +0.32 0.60 0.53 8.15 t-stat (1.59) (3.22)'i (1.21) K** 1975 -19.40 +740.9 +0.70 0.76 0.72 17.73 t-stat (3.81)*" (4.18)' (3.25) *H* 1976 -13.07 +673.0 +o.49 0.68 0.62 11.61 t-stat (2.71) (3.26)j5 (2.17)r mm - 56 - ANNEX IIl (ctd) POLICY MODELS OF PROTECTION: REGRESSION RESULTS. Selected Variables Const WPVA REGPO nl R2 2 F-stat. + + 17 predicted sign Results 1970 -4.07 +312.3 +0.27 0.28 0.18 2.75 t-stat (0.59) (1.86)' (0.68) 1975 -10.89 +641.5 +0.50 0.35 0.26 3.84 t-stat (1.29) (2.03)m (1.30) mm 1976 -9.81 +580.4 +o-47 0.51 o.45 7.43 t-stat (1.89) " (2.47)3 H (1.82)Ns ANNEX III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1970 Adding Machine EFPRO VAPW HERF SCALE GEG EAM NOF EFPRO 1.000 -0_330 -o.164 -0.243 -0.009 0.181 -0.244 VAPW -0.330 1.000 0.902 0.458 0.233 -0.330 -0.274 HERF -o.i64 0.902 1.000 0.552 o.462 -0.217 -0.509 SCALE -0.243 0.458 0.552 1.000 0.319 0.402 -0.162 GEG -0.009 0.233 -o.462 0.319 1.000 0.268 -0.423 EAM 0.181 -0.330 -0.217 0.402 0.268 1.000 0.310 NOF -0.244 -0.274 -0-509 -0.162 -0.423 0.310 1.000 1970 Interest Group 4 EFPRO HERF SCALE BCR GRO VAPW SKILL WPVA EFPRO 1.000 -o.164 -0.243 -0.232 -o.448 -0.330 -0.395 0.508 HERF -o.164 1.000 0.552 0.247 o.694 0.902 0.589 -o.616 SCALE -0.243 0.552 1.000 0.102 0.420 o.458 0.794 -0.577 BCR -0.232 0.247 0.102 1.000 0.332 0.291 0.201 -0.525 GRO -o.448 o.694 0.420 0.332 1.000 o.804 0.757 -o.649 VAPW -0.330 0.902 o.458 0.291 o.8o4 1.000 o.628 0.679 SKILL -0.395 0.589 0.794 0.201 0.757 o.628 1.000 -o.670 WPVA 0.508 -o.616 -0.577 -0.525 -o.649 0.679 -o.670 1.000 ANNEX III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1970 National Policy EFPRO MPNEC CNEC FARM VRT GRO SCALE REGRI EINT EFPRO 1.000 -0.304 -0.425 0.111 -0.090 -o.448 -0.243 -0.364 0.291 MPNEC -0.304 1.000 0.011 -0.142 0.158 0.188 -0.211 -0.097 o.163 CNEC -0.425 0.011 1.000 0.115 -0.052 0.364 0.513 o.418 -0.469 FARM 0.111 -0.142 0.115 1.000 -0.527 -0.033 0.050 -0.069 -0.360 VRT -0.090 0.158 -0.052 -0.527 1.000 -o.o67 -0.276 -0.335 o.673 CRO -0.448 0.188 0.364 -0.033 -o.067 1.000 0.420 0.352 -0.490 SCALE -0.243 -0.211 0.513 0.050 -0.276 0.420 1.000 o.467 -0.613 REGRI -0.364 -0.097 0.418 -0.069 -0.335 0.352 o.467 1.000 -0.432 EINT 0.291 0.163 -o.469 -0.360 0.673 -0.490 -0.613 -0.432 1.000 1970 IBRD Common Set EFPRO VAPW MPNEC EXNEC NOF NOE DNOE EFPRO 1.000 -0.330 -0.30)4 0.020 -0.244 -0.156 0.327 VAPW -0.330 1.000 -0.126 -0.012 -0.274 -0.236 -0.201 MPNEC -0.304 -0.126 1.000 o.611 -0.040 -0.200 -0.189 EXNEC 0.020 -0.012 0.611 1.000 0.052 -0.078 -o.048 NOF -0.244 -0.274 -0.040 0.052 1.000 0.724 -0.250 NOE -0.156 -0.236 -0.200 -0.078 0.724 1.000 -0.263 DNOE 0.327 -0.201 -0.189 -o.o48 -0.250 -0.263 1.000 - 59 - ANNEX III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1970 Selection of variables (17 sectors) EFPRO WPVA REGPO FARM EFPRO 1.000 0.508 0.325 0.111 WPVA 0.508 1.000 0.356 -o.o46 REGPO 0.325 0.356 1.000 o.o96 FARM 0.111 -o.o46 o.o96 1.000 1970 Selection of variables (14 sectors EFPRO WPVA REGPO EFPRO 1.000 0.737 o.467 WPVA 0.737 1.000 0.338 REGPO o.467 0.338 1.000 ANNEX III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1975 Adding Machine EFPRO VAPW HERF SCALE GEG EAM NOF EFPRO 1.000 -0.231 -0.225 -0.100 -0.205 0.471 -0.124 VAPW -0.231 1.000 0.976 0.327 0.127 -0.302 -0.244 HERF -0.225 0.976 1.000 o.416 0.270 -0.312 -0.361 SCALE -0.100 0.327 o.4i6 1.000 0.270 0.056 -0.161 GEG -0.205 0.127 0.270 0.270 1.000 0.051 0.430 EAM 0.471 -0.302 -0.312 0.056 0.051 1.000 0.125 NOF -0.124 -0.244 -0.361 -0.161 0.430 0.125 1.000 1975 Interest Group EFPRO HERF SCALE BCR GRO VAPW SKILL WPVA EFPRO 1.000 -0.255 -0.100 -0.370 -0.389 -0.230 -0-305 0.526 HERF -0.255 1.000 o.416 0.302 o.648 0.976 0.524 -0.630 SCALE -0.100 0.416 1.000 -0.073 0.368 0.327 0.809 -0.512 BCR -0.370 0.302 -0.073 1.000 0.384 0.329 0.115 -0.432 GRO -0.389 o.648 0.368 0.384 1.000 0.704 o.606 -0.764 VAPW -0.230 0.976 0.327 0.329 0.704 1.000 o.489 -o.635 SKILL -0.305 0.524 0.809 0.115 0.606 0.489 1.000 -o.669 WPVA 0.526 -o.630 -0.512 -0.432 -0.764 -0.635 -o.669 1.000 ANNEX III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1975 National Policy EFPRO MPNEC CNEC FARM VRT GRO SCALE REGRI EINT EFPRO 1.000 -0.020 -0.189 0.577 -0.524 -0.389 -0.100 -0.228 0.028 MPNEC -0.020 1.000 -0.261 -0.229 0.217 0.197 -0.286 -0.16? 0.252 CNEC -0.189 -0.261 1.000 0.114 -o.166 o.486 0.513 0.429 -0.520 FARM 0.577 -0.229 0.114 1.000 -0.527 -0.041 0.005 -0.070 -0.363 VRT -0.524 0.217 -0.166 -0.527 1.000 0.163 -0.309 -0.397 0.621 GRO -0.389 0.197 o.486 -0.041 0.163 1.000 0.368 0.270 -0.545 SCALE -0.100 -0.286 0.513 0.005 -0.309 0.368 1.000 o.496 -0.619 REGRI -0.228 -0.162 0.429 -0.070 -0.397 0.270 o.496 1.000 -0.488 EINT 0.028 0.252 -0.520 -0.363 0.621 -0.545 -0.619 -o.488 1.000 1975 IBRD Coirunon Set EFPRO VAPW MPNEC EXNEC NOF NOE DNOE EFPRO 1.000 -0.230 -0.202 -0.387 -0.124 -0.121 0.545 VAPW -0.230 1.000 -0.087 -0.134 -0.244 -0.243 -0.209 MPNEC -0.202 -0.087 1.000 0.503 -o.o98 -0.279 o.o86 EXNEC -0.387 -0.134 0.503 1.000 0.318 0.228 -0.215 NOF -0.124 -0.244 -o.o98 0.318 1.000 0.717 -0.192 NOE -0.121 -0.243 -0.279 0.228 0.717 1.000 -0.315 DNOE 0.545 -0.209 o.o86 -0.215 -0.192 -0.315 1.000 - 62 - ANNEX.III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1975 Selection of variables (17 sectors) EFPRO WPVA REGPO FARM EFPRO 1.000 0.526 0.405 0.577 WPVA 0.526 1.000 0.258 -0.073 REGPO 0.405 0.258 1.000 -0.140 FARM 0.577 -0.073 -o.14o 1.000 1975 Selection of variables (14 sectors) EFPRO WPVA REGPO EFPRO 1.000 0.733 0.623 WPVA 0.733 1.000 0.216 REGPO 0.623 0.216 1.000 ANNEX III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1976 Adding Machine EFPRO VAPW HERF SCALE GEG EAM NOF EFPRO 1.000 -0.239 -0.192 -0.197 -0.059 0.490 -0.132 VAPW -0.239 1.000 0.850 0.332 0.136 -0.260 -0.248 HERF -0.192 0.850 1.000 0.552 0.434 -0.275 -0.508 SCALE -0.197 0.332 0.552 1.000 0.270 0.167 -0.161 GEG -0-059 0.136 0.434 0.270 1.000 0.002 -0.429 EAM 0.490 -0.260 -0.275 0.167 0.002 1.000 0.114 NOF -0.132 -0.248 -0.508 -0.161 -0.429 0.114 1.000 1976 Interest Group EFPRO HERF SCALE BCR GRO VAPW SKILL WPVA EFPRO 1.000 -0.192 -0.197 -o.406 -0.509 -0.239 -0.358 0.632 HERF -0.192 1.000 0.552 0.278 0.577 o.850 0.575 -0.672 SCALE -0.197 0.552 1.000 0.038 0.377 0.332 0.809 -0.590 BCR -o.406 0.278 0.038 1.000 0.402 0.327 0.193 -0.451 GRO -0.509 0.577 0.377 0.402 1.000 0.707 0.631 -0.807 VAPW -0.239 0.850 0.332 0.327 0.707 1.000 0.493 -0.628 SKILL -0.358 0.575 0.809 0.193 0.631 0.493 1.000 -0.734 WPVA 0.632 -0.672 -0.590 -0.451 -0.807 -0.628 -0.734 1.000 ANNEX III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1976 National Policy EFPRO MPNEC CNEC FARM VRT ORO SCALE REGRI EINT EFPRO 1.000 0.181 -0.469 -0-054 -o.248 -0.509 -0.197 -0.259 0.306 MPNEC 0.181 1.000 -0.310 -0.228 0.181 0.136 -0.340 -0.234 0.296 CNEC -o.469 -0.310 1.000 -0.092 -0.005 0.322 0.393 0.158 -0.341 FARM -0.054 -0.228 -0.092 1.000 -0.525 -0.029 0.007 -0.074 -0.354 VRT -0.248 0.181 -0.005 -0.525 1.000 0.181 -0.224 -0.333 0.576 GRO -0.509 0.136 0.322 -0.029 0.181 1.000 0.377 0.436 -0.584 SCALE -0.197 -0.340 0.393 0.007 -0.224 0.377 1.000 0.529 -o.638 REGRI -0.259 -0.234 0.158 -0.074 -0.333 o.436 0.529 1.000 -0-576 EINT 0.306 0.296 -0.341 -0.354 0.576 -0.584 -0.638 -0-576 1.000 1976 IBRD Commion Set EFPRO VAPW MPNEC EXNEC NOF NOE DNOE EFPRO 1.000 -0.239 0.181 0.049 -0.132 -0.212 0.811 VAPW -0.239 1.000 -0.128 -0.162 -0.248 -0.241 -0.186 MPNEC 0.181 -0.128 1.000 0.534 -0.112 -0.270 0.148 EXNEC 0.o49 -0.162 0.534 1.000 0.304 0.173 -0.150 NOF -0.132 -0.248 -0.112 0.304 1.000 0.730 -0.199 NOE -0.212 -0.241 -0.270 0.173 0.730 1.000 -0.287 DNOE 0.811 -0.186 0.148 -0.150 -0.199 -0.287 1.000 - 65 - ANNEX-III (ctd.) POLICY MODELS OF PROTECTION: REGRESSION RESULTS Intercorrelation matrices 1976 Selection of variables (17 sectors) EFPRO WPVA REGPO FARM EFPRO 1.000 O.632 0.551 -0.054 WPVA 0.632 1.000 0.375 -o.o96 REGPO 0.551 0.375 1.000 -0.124 FARM -0.054 -o.o96 -0.124 1.000 1976 Selection of variables (14 sectors) EFPRO WPVA REGPO EFPRO 1.000 0.735 o.607 WPVA 0.735 1.000 0.354 REGPO O.607 0.354 1.000 - 66 - References 1 7 B. Balassa et.al., The Structure of Protection in Developing Countries, London, 1971 / 2 7 C.A. van den Beld, 'De-industrialisation in the Netherlands?' from F. Blackaby (ed.), De-industrialisation, Heinemann, London, 1979, pp. 124-140 / 3 7 A. Borrman, 'Outlets for Developing Countries in the German Markets: the scope for national trade policy', Intereconomics, 1979, no. 2, pp. 60-64 4 7 R.E. Caves, 'Economic Models of Political Choice: Canada's Tariff Structure', Revue Canadienne d'Economique, May 1976, pp. 278-300 / 5 7 Centraal Bureau voor de Statistiek (Central Bureau of Statistics), De productiestructuur van de Nederlandse volkshuishouding (The Structure of Production in the Dutch Economy), part VI, Input-Output Tables 1968-1970 and part VII, Input-Output Tables 1972-1975, Staatsuitgeverij, The Hague / 6 7 Centraal Bureau voor de Statistiek (Central Bureau of Statistics), Nationale Rekeningen 1978 (National Accounts 1978), Staatsuitgeverij, The Hague, 1979 7 7 Centraal Bureau voor de Statistiek (Central Bureau of Statistics), Maandstatistiek van de industrie (Monthly Statistics of Industry), several issues, Staatsuitgeverij, The Hague / 8_7 Centraal Bureau voor de Statistiek (Central Bureau of Statistics), Statistisch Bulletin (Statistical Bulletin), several issues, Staatsuitgeverij, The Hague 9 7 Centraal Plan Bureau (Central Planning Bureau), Centraal Economisch Plan (Central Economic Plan), several issues, Staatsuitgeverij, The Hague /l0o 7 J. Clark Leith, 'Substitution and supply elasticities in calculating the effective protective rate', Quarterly Journal of Economics, vol. 82, no. 4, 1968, pp. 588-601 /T11 7 'Decree of the Commission, no. 80/47/EEC', Official Journal of the European Communities, nr. L 16/14, 22-1-1980, Luxembourg / 12_7 Financial Times, February 4, 1981 /13_7 L. Gamir, 'The Calculation of Effective Rates of Protection in Spain', from H.G. Grubel, H.G. Johnson (eds.), Effective Tariff Protection, Geneva, 1971, pp. 202-208 / 14_7 In- en Uitvoernieuws (Import and Export News), no. 8, August 1980; Kluwer/Samson, Deventer/Alphen aan den Rijn /T157 In- en Uitvoernieuws (Import and Export News), no. 11, November 1980; Kluwer/Samson, Deventer/Alphen aan den Rijn /T16 7 D.B. Keesing, M. Wolf, Textile quota's against developing countries, Thames Essay no. 23, Trade Policy Research Centre, London, 1980 - 67 - /17 7 J. Kol, L.B.M. Mennes, Concurrentievermogen van de Nederlandse industrie (Competitive Position of Dutch Manufacturing Industry), Centre for Development Planning, Erasmus University, in cooperation with the Netherlands Economic Institute, June 1979, Rotterdam /,187 J. Kol, L.B.M. Mennes, 'Nederlandse industrie en internationale concurrentie (I)' (Dutch Manufacturing Industry and International Competition (I)), Economisch Statistische.Berichten, no. 3278, 29 October 1980, pp. 1210-1216 J/19 7 R.I. McKinnon, 'Protection and the Value Added Tax', from H.G. Grubel, H.G. Johnson (eds.), Effective Tariff Protection, Geneva, 1971, pp. 287-293 /120 7 Ministerie van Economische Zaken (Ministry of Economic Affairs), Press Reports, no. 267, May 25, 1979; no. 160, March 25, 1980; no. 457, September 10, 1980, Staatsuitgeverij, The Hague / 21 7 Ministerie van Economische Zaken (Ministry of Economic Affairs), Protectie, de opstelling van Nederland tegenover de toenemende internationale handelsbelemmeringen (Protection, the position of the Netherlands vis-a-vis the increasing international trade restrictions), Memorandum submitted to Parliament, October 12, 1978, Staatsuitgeverij, The Hague / 22 7 Ministerie van Economische Zaken (Ministry of Economic Affairs), Resultaten van Multilaterale Handelsonderhandelingen (de Tokyo- ronde) (Results of Multilateral Trade Negotiations (the Tokyo- round)), Memorandum submitted to Parliament, December 20, 1979, Staatsuitgeverij, The Hague /§23 7 Ministerie van Economische Zaken (Ministry of Economic Affairs), Selectieve Groei (Selective Growth), Memorandum submitted to Parliament, June 1976, Staatsuitgeverij, The Hague / 24_7 Ministerie van Economische Zaken (Ministry of Economic Affairs), Voortgangsnota Economisch Structuurbeleid (Progressreport on Economic Structure Policy), Memorandum submitted to Parliament, September 27, 1979, Staatsuitgeverij, The Hague / 25_7 Ministerie van Economische Zaken (Ministry of Economic Affairs), Zeescheepsnieuwbouw (Shipbuilding), Memorandum submitted to Parliament, October 2,1980, Staatsuitgeverij, The Hague / 26_7 W.T.M. Molle, L. Beumer, Ontwikkeling van de Werkgelegenheid per bedrijfsklasse en gewest (Development of Employment for Sectors and Regions), Netherlands Economic Institute, internal report, Rotterdam, 1979 / 27_7 F. Muller, P.J.J. Lesuis, N.M. Boxhoorn, Een multisectormodel voor de Nederlandse economie in drie en twintig bedrijfstakken (A Multi-sector Model for the Dutch Economy with Twenty-three Sectors), Scientific Council for Government Policy, series Voorstudies en Achtergronden, Staatsuitgeverij, The Hague, 1980 l 28 7 Parlementaire subcommissie voor steunverlening aan individuele bedrijven (Parliamentary Subcommittee on Support for Individual Firms), Steunverlening individuele bedrijven (Support for Individual Firms), Report to Parliament, December 14, 1979, Staatsuitgeverij, The Hague - 68 - / 29 7 C.H.T. Vijverberg, Kleinschalige Werkgelegenheid (Employment in Small-scale Industries), Netherlands Economic Institute, March 1979, Rotterdam / 30 7 Wetenschappelijke Raad voor het Regeringsbeleid (Scientific Council for Government Policy), Plaats en Toekomst van de Nederlandse industrie (Position and Future of the Dutch Manufacturing Industry), Report to the Government, no. 18, Staatsuitgeverij, the Hague, 1980 / 31 7 A.J. Yeats, Trade Barriers Facing Developing Countries, London, 1979. MARKET PENETRATION RESEARCH PROJECT--WORK-IN-PROGRESS REPORTS 425 Britain's Pattern of Specialization in Manufactured Goods Vincent Cable & with Developing Countries and Trade Protection Ivonia Rebelo 4l26 Worker Adjustment to Liberalized Trade: Costs and Graham Glenday Assistance Policies Glenn P. Jenkins & John C. Evans 427 On the Political Economy of Protection in Germany H.H. Glismann & F.D. Weiss 428 Italian Commercial Policies in the 1970s Enzo Grilli 429 Effects of Non-Tariff Barriers to Trade on Prices, Employment, and Imports: The Case of the Swedish Textile and Clothing Industry Carl Hamilton 430 Output and Employment Changes in a "Trade Sensitive" John Mutti & Sector: Adjustment in the U.S. Footwear Industry Malcolm Bale 431 The Political Economy of Protection in Belgium P.K.M. Tharakan 432 European Community Protection Against Manufactured Eric Verreydt & Imports from Developing Countries: A Case Study in Jean Waelbroeck the Political Economy of Protection 492 The Political Market for Protection in Industrial Kym Anderson & Countries: Empirical Evidence Robert Baldwin 493 On Protectionism in the Netherlands K.A. Koekkoek J. Kol & L.B.M. Mennes 494 Patterns of Barriers to Trade in Sweden: A Study in the Theory of Protection Lars Lundberg PUB HG3881.5 .W57 W67 no.493 Koekkoek, K.A. On protectionism in the Netherlands / PUB HG3881.5.W57 W67 no.493 Koekkoek, K.A. On protectionism in the Netherlands /