Did Good Institutions Produce Good Tariffs? Evidence From Tariff Protection in Colonial Victoria

Abstract

Were tariff rates in the Australian colony of Victoria directed towards growth‐enhancing industries or rent seekers? Recent research suggests tariffs may be welfare enhancing if they are directed at industries with positive externalities; something more likely when institutions are strong. Using disaggregated tariff data for the years 1872, 1880, and 1890, we analyse the relationship between industry characteristics and tariffs, finding little evidence that Victorian industries with positive externalities received tariff protection. Our results throw doubt on good institutions necessarily producing good tariff outcomes and suggest the relationship between tariffs and growth is more complex than current studies assume.

Revisiting the tariff‐growth correlation: The Australasian colonies, 1866–1900

“…In summary, previous studies of Australasia during the first era of globalisation have not found a positive relationship between tariffs and growth (Athukorala & Chand, 2007; Siriwardana, 1991; Wilson & Shanahan, 2012); in fact, some of these studies have found the opposite. Unlike these earlier studies, however, this article was the first to take advantage of the cross‐colonial variation in tariffs and growth rates, relying upon data from Lloyd (2017) and Sinclair (2009), respectively.…”

“…In this counterfactual scenario, real output in the colony would have been reduced by 0.7% (Siriwardana, 1991, p. 56). Wilson and Shanahan (2012) evaluated whether Victoria's trade policy raised growth by extending protection to those industries that created positive externalities. Their analysis of matched tariff and industry data for the years 1880 and 1890 revealed that the tariff level was negatively and significantly correlated with certain indicators of positive‐externality‐generating industries: capital intensity and the proportion of power obtained from steam (Wilson & Shanahan, 2012, p. 140).…”

“…Wilson and Shanahan (2012) evaluated whether Victoria's trade policy raised growth by extending protection to those industries that created positive externalities. Their analysis of matched tariff and industry data for the years 1880 and 1890 revealed that the tariff level was negatively and significantly correlated with certain indicators of positive‐externality‐generating industries: capital intensity and the proportion of power obtained from steam (Wilson & Shanahan, 2012, p. 140). Altogether, far from exhibiting a positive association between tariffs and growth, Australia and particularly Victoria exhibit quite the opposite.…”

Roles of Education in Productivity Growth in Australia, 1860–1939

“…Intuitively, while technology mattered, it was more likely to do so in the early part of the period when Victoria's productive capacity was at an earlier stage of development. Moreover, there was targeted immigration, and protection in industry during the period had been targeted towards labour‐intensive, low‐skilled industrial production (Wilson & Shanahan, ). These protective stances were largely continued after Federation, and indeed increased for the whole of Australia after World War I.…”

“…labour-intensive, low-skilled industrial production (Wilson & Shanahan, 2012). These protective stances were largely continued after Federation, and indeed increased for the whole of Australia after World War I.…”