Should-Read: Pseudoerasmus: The Bairoch Conjecture on Tariffs and Growth

Should-Read: Manufacturing-centric industrial policy works (or worked) best when the hegemon of the world economy plays the role of the Importer of Last Resort. And only worked when there was a highly competent government–which raises the possibility that pretty much any other non-nonsensical development strategy would have worked as well…

Pseudoerasmus: The Bairoch Conjecture on Tariffs and Growth: “There is a vast empirical literature which finds a positive correlation between economic growth and various measures of openness to international trade in the post-1945 period…

…This huge body of research does have a few very compelling critics, the most prominent being Rodríguez & Rodrik (2000). That widely cited paper argues — amongst many other things — that there is no necessary relationship between trade and growth, either way. It depends on the global context as well as domestic economic conditions. I think that’s correct. There is also a smaller literature on 19th century trade and growth associated with the historian Paul Bairoch. He argued informally that European countries with higher tariffs grew faster in the late 19th century. This rough eyeball correlation was confirmed econometrically by O’Rourke (2000)… [and] Clemens & Williamson (2001, 2004), but was disputed by Irwin (2002)…. Lehmann & O’Rourke (2008, 2011) then countered by disaggregating tariffs of those 10 rich countries into revenue, agricultural, and industrial components, reporting that duties specifically protecting the manufacturing sector were indeed correlated with growth….

The positive growth-tariff relationship for the rich countries is large; much smaller for the non-European periphery, and negative for the European periphery (e.g., Spain, Russia, etc.) So obviously even with the same global conditions there’s a lot of heterogeneity. According to Clemens & Williamson (2001, 2004) the reason there was an overall positive correlation in the 19th century, is that most countries with high tariffs exported to countries with lower tariffs. In other words, Great Britain et al. acted as free-trade sinks (my phrase, not theirs) for exporting countries such as post-Bismarckian Germany which protected their steel and other industries…. Jacks (2006) — using the Frankel-Romer gravity model approach — both replicates O’Rourke (2000) and supports the free-trade-sink view of Clemens & Williamson (2001, 2004)…. Tena-Junguito (2010) focuses on industrial tariffs and supports the other aspect of the Clemens & Williamson finding: the tariff-growth correlation applies only to the “rich country club”…