Working Paper: CEPR ID: DP10522
Authors: Giovanni Federico; Michelangelo Vasta
Abstract: The impact of protection on economic growth is one of the traditional issues in economic history, which has enjoyed a revival in recent times, with the publication of a number of comparative quantitative papers. They all share a common weakness: they measure protection with the ratio of custom revenues to imports, which is bound to bias results if imports are not perfectly inelastic. In this paper, we show that the measure of protection matters, by estimating the Trade Restrictiveness Index (TRI) by Anderson and Neary (2005) for Italy from its unification to the Great Depression. We put forward a different interpretation of some key moments of Italian trade policy and we show that the aggregate welfare losses were small in the long run and mostly related to the outlandish protection on sugar in the 1880s and 1890s. We also show that different measures of protection affect considerably the results of econometric tests on the causal relation between trade policy on economic growth in Italy and in the United States. Accordingly, we argue that the economic history of trade policy needs a systematic re-estimating of protection.
Keywords: Italian economic growth; trade policy; trade restrictiveness index
JEL Codes: F13; F14; N73; N74
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade Restrictiveness Index (TRI) (F14) | Economic Growth (O49) |
| Nominal Protection (NT) (F52) | Economic Growth (O49) |
| Trade Protection (F13) | GDP Growth (Pre-1906) (N13) |
| Trade Protection (F13) | GDP Growth (Post-1906) (N12) |
| Income (D31) | Trade Protection (Post-1906) (F13) |
| Welfare losses due to protection (D69) | Economic Growth (O49) |