Tariffs and Growth in the Late 19th Century

Abstract

The paper estimates the correlation between tariffs and economic growth in the late 19th century, in the context of three types of growth equation: unconditional convergence equations; conditional convergence equations; and factor accumulation models. It does so for a panel of ten countries between 1875 and 1914. Tariffs were positively correlated with growth in these countries during this period. Economic theory is ambiguous as regards the relationship between trade policy and growth. The growth literature of the past decade has produced an impressive array of models in which protection can either increase or reduce long run growth rates (Grossman and Helpman, 1991; Rivera-Batiz and Romer, 1991; Stokey, 1991; Young, 1991). Such theoretical ambiguity invites empirical research. While new growth theory is ambiguous on the subject, the new empirical growth literature has produced a consensus that free trade is positively associated with growth, based on evidence from the late 20th century (but see Rodrlguez and Rodrik (1999) for a sceptical review of the literature). The clear