Net social profitability,domestic resource costs,and effective rate of protection

Net social profitability (NSP) and domestic resource costs of foreign exchange earned or saved (DRC) are conceptually related, since each can be derived from the other. The effective rate of protection on value added (ERP) is algebraically identical to DRC if all importable inputs are actually imported or are zero, NSP is zero, and (ERP+1) is multiplied by the shadow price of foreign exchange. A decision rule for allocation of resources is to approve all projects with a positive NSP and a DRC ratio less than the shadow price of foreign exchange. No comparable rule can be stated for ERP, except under special assumptions.