Previous papers have looked at the interwar relationship between aggregate trade flows and the average tariff, and have found that interwar protection mattered less for the value of world trade than was traditionally thought. They have also explored the interwar relationship between trade bloc membership and bilateral trade flows, and concluded that trade blocs mattered less than traditionally thought as well.
In this paper we have estimated the impact of interwar UK trade policies on UK imports, using detailed information on trade and trade policy for 258 product categories. Our mean estimates suggest that the shift toward protection in 1931 and 1932 can account for about one-quarter of the decline in UK imports between 1929 and 1933, which is in line with previous results for the United States. However, we have also found that the shift toward protection, which was explicitly discriminatory, substantially increased the share of UK imports coming from the British Empire. Our mean estimates suggest that trade policy can explain over 70 percent of the increase in the Empire’s share of UK imports between 1930 and 1933. Other forces served to increase that share still further, but the impact of British protectionism was substantial. As late as 1938, trade policies can still account for over 50 percent of the shift toward Empire experienced since 1930.
What would we have found had we not had data on tariffs and trade for our 258 goods? What if we had only been able to calculate tariffs using more aggregate data? Calculating average tariffs by dividing tariff revenue by the value of imports is standard in the economic history literature, given the lack of uniform trade and tariff classifications in the past: as previously noted, it is what Irwin (1998a); Madsen (2001); and Estevadeordal, Frantz, and Taylor (2003) all do. Sometimes it has been done for broad categories of goods rather than imports as a whole (Lehmann and O’Rourke 2011); sometimes it has even been possible to calculate bilateral tariffs using the method (Albers 2017). Imagine that it were possible to compute such average tariff measures bilaterally, for each of our nine categories h used in the econometric analysis; or more realistically, given the data constraints of the period, for agricultural and non-agricultural goods;51 or even more realistically, just for aggregate imports. Table 3 presents the results that we would have obtained for 1933, looking just at the impact of tariffs, if we had only had data on trade and trade-weighted average tariffs at these three higher levels of aggregation.52 As can be seen, the results regarding the impact of tariffs on the total value of trade are essentially unaffected by the level of aggregation, since these depend above all on the upper level elasticity of substitution κ, which was in all cases estimated using aggregate data. However, the estimated impact of tariffs on the direction of trade falls as the level of aggregation increases: if we had used bilateral trade-weighted average tariff data in a one-good model we would have concluded that tariffs only accounted for 13 percent of the shift toward Empire, whereas in fact they accounted for over 50 percent.
Methodologically, this paper suggests that there are advantages to using trade and trade policy data that are as disaggregated as possible, and looking at what trade blocs do, as opposed to simply looking at whether they exist. Historically, the paper suggests that discriminatory interwar trade policy mattered more for trade patterns than the previous cliometric literature has found. It certainly mattered a lot in the British case; whether what was true for the United Kingdom was true elsewhere is a question which we hope that future research will address.
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Alan de Bromhead is a Senior Lecturer in Economics at Queen’s University Belfast, and a research affiliate at the CEPR.
Alan Fernihough is a Senior Lecturer at Queen’s University Belfast’s Management School, and a Research Associate at Queen’s University Centre for Economic History.
Markus Lampe is a Professor of Economic and Social History at Vienna University of Economics and Business.
Kevin Hjortshøj O’Rourke is a Professor of Economics at NYU Abu Dhabi, is a Member of the Royal Irish Academy, a Fellow of the British Academy, and a former Research Director of CEPR.
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