Economic Aspects of Australian Federation: Trade Restrictiveness and Welfare Effects in the Colonies and the Commonwealth, 1900–3*

Abstract

Australian Federation in 1901 entailed the formation of a customs union among its formerly tariff‐autonomous colonies. Although the elimination of tariff barriers to intercolonial/interstate trade would have been welfare‐enhancing, Australia's common external tariff was set considerably higher than the tariffs on external goods imported by the pre‐Federation colonies, implying a welfare reduction. Using a dataset of 3,584 commodity‐ and colony‐disaggregated imports, this paper estimates trade restrictiveness indices and welfare losses for the Australian colonies and Commonwealth. Despite the high external tariff post Federation, the customs union produced a net static welfare gain conservatively estimated to have been 0.17 per cent of GDP.