The Structure of Tariffs and Long-Term Growth

Tariffs can create allocative inefficiencies that reduce national income. There is thus a legitimate presumption that high average levels of tariffs are a poor policy choice. However, tariffs can also be used to raise national income provided the appropriate industry is chosen for protection. Examples include Paul Krugman’s (1987) model of learning-by-doing and Gene M. Grossman and Elhanan Helpman’s (1991) endogenous growth models with research and development (R&D) externalities. In these models, tariffs raise per capita gross domestic product (GDP) when they target the industry subject to externalities. Thus, while the average tariff matters, so too does the finer structure of tariffs across industries. Yet tariff structure has been entirely absent from the empirical tariffs-and-growth literature. The current empirical literature examines the impact of a country’s average tariff level on its subsequent long-term growth. For the post-war period, the impact of average tariffs on growth is found to be negative in Sebastian Edwards (1992, 1998) and Michael A. Clemens and Jeffrey G. Williamson (2004) and positive in Athanasios Vamvakidis (2002), Halit Yanikkaya (2003), and David N. DeJong and Marla Ripoll (2006). For the late-nineteenth century, the results are even more conflicting. See