Free trade and European economic development in the 19th century

Abstract

This article is an attempt to analyse empirically the effects of the free trade period which began around 1860 on three then “less developed” countries: France, Germany and Italy, and on the “developed” country: Great Britain. From the analysis of data actually available it clearly appears that free trade had radically different effects in the two types of countries. In the “developed” country, the effects were on the whole positive, since it was during this period that United Kingdom's economic growth was the speediest. For the “less developed countries”, the results were negative. In all the three cases, the effects of the free trade period were the very opposite of those predicted by the liberal theories: deceleration of economic growth, of innovation and of investment. Since economic growth was faster in Great Britain than on the continent, this resulted in a larger gap between development levels, instead of the attenuated disparity forecast in neo-liberal theories. The reintroduction of protective tariffs (around 1880–1890) in the “less developed” countries coincided in each case with a total reversal of the economic trends: growth accelerated and the pace of innovation and investment speeded up. However, the support that this experience might bring to protectionist theories must be tempered since after analyzing the causes of the negative evolution of continental Europe during the free trade period, it appears that it was essentially due to a slowing down of the rate of increase of the demand of the rural population (which at the time still represented some 60% of the consumers) whose incomes had been strongly affected by large imports of cereals mainly from North America.