Why Did the Tariff-Growth Correlation Reverse After 1950?

Michael A. Clemens, Jeffrey G. Williamson

NBER Working Paper No. 9181
Issued in September 2002
NBER Program(s):Development of the American Economy, International Trade and Investment

This paper uses a new database to establish a key finding: high tariffs were associated with fast growth before World War II, while associated with slow growth thereafter. The paper offers some explanations for the sign switch by controlling for novel measures of the changing world economic environment. Rejecting alternative explanations based on changing export market growth or transportation cost declines, it shows how the oft-quoted Sachs-Warner result might be turned on its head in a world environment characterized by a moderately higher level of generalized tariff protection. We confirm the spirit of recent findings by Rodrik and Rodr¡guez that postwar tariffs need not be negatively correlated with growth in an unconditional fashion. Just a 4% increase in average tariff rates among trading partners might suffice to reverse any negative relationship between an average country's tariffs and its growth. An increase in own tariffs after 1970 hurt or at least didn't help growth, but it would have helped growth in a world where average trading partners' tariffs were moderately higher. The world environment matters. Leader-country reaction to big world events matters.

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Document Object Identifier (DOI): 10.3386/w9181

Published: Clemens, Michael A. and Jeffrey G. Williamson. "Why Did The Tariff-Growth Correlation Change After 1950?," Journal of Economic Growth, 2004, v9(1,Mar), 5-46.

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