How to Calculate a Nominal Protection Coefficient

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Nominal protection coefficient shows the ratio between the price paid for a product upon entering the country and the price paid inside the nation by consumers. Both imported and exported goods have their own ratios to show the level of additional fees added to products between their point of origin and the final buyer. A higher ratio indicates more government charges and taxes added to the border price, which raises the amount paid by citizens on imported items.

Divide the border production price by the price paid for the item in the market (domestic producer price) to find the nominal protection coefficient for imported goods. For instance, a border price of $100 per unit divided by a domestic price of $50 per unit would yield a nominal protection coefficient (NPC) of 100/50 = 2.

Find nominal protection coefficient for exported items by dividing the private price for the income of an item divided by the public price for the item. For example, a farmer earns $30 per unit produced, but it sold at $60 on the market, would result in an output NPC of 30/60 = ½ = .5.

Examine your data: NPC for input below one suggests taxes, subsidies, government intervention or a restriction of trade. Look for an NPC for output greater than one as an indicator of producer subsidies since the producer earns more than the market would pay.

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