Tariffs for a Growing Country

The second post on the Globalization Institute blog links to a book which contests the idea that protectionism is good for developing countries.  Yes, the currently rich countries imposed heavy tariffs when they were in the growing phase. But this does not mean that the tariffs were good for them. Rather, the tariffs themselves are evidence that a lot of trade was occurring. Note that an isolated country does not need to impose tariffs, because no one can import or export to that country anyway. It is only when the country is exposed to the outside world that domestic producers start lobbying for tariffs on imports. In the 19th century, something similar happened. New transport technologies reduced the costs of trade so much that imports suddenly became possible. It was to stop those imports that tariffs were imposed. But…

On balance, it appears that the new transport technologies were so cost-reducing that that their effects swamped those of rising European and American protectionism. 

So, nope. Trade is not bad for you, whatever your level of development.

3 thoughts on “Tariffs for a Growing Country

  1. Off topic: This is interesting. The paper by Douglas Houston of Cato, concludes, on the basis of data from 119 nations, that in countries where property rights are not clearly established, corruption can have significant expansionary effects on the economy. It further states that corrupt behaviour can affect the economy positively by substituting for bad governance.

    The paper also advises international donors thus:
    Corruption should not be indiscriminately attacked in poorly governed countries. It often is symptomatic of the poverty of legal protections. Rather than attempt to increase the cost of corrupt behavior, the appropriate policy in these circumstances is to focus on reducing the cost of engaging in legal transactions.

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