Protectionism and economic growth: Causal evidence from the first era of globalization

TL;DR

This study examines the impact of protectionist policies on economic growth during the first era of globalization, using Sweden's 1887 tariff change as a natural experiment, and finds no clear effect on growth.

Contribution

It provides causal evidence on protectionism's effects on economic growth using a novel historical natural experiment and synthetic control methodology.

Findings

Protectionist policies did not significantly affect economic growth.

Tariff laws increased government revenue.

Protectionist government did not stimulate economic activity.

Abstract

We investigate how protectionist policies influence economic growth. Our empirical strategy exploits an extraordinary tax scandal that gave rise to an unexpected change of government in Sweden. A free-trade majority in parliament was overturned by a protectionist majority in 1887. The protectionist government increased tariffs. We employ the synthetic control method to select control countries against which economic growth in Sweden can be compared. We do not find evidence suggesting that protectionist policies influenced economic growth and examine channels why. The new tariff laws increased government revenue. However, the results do not suggest that the protectionist government stimulated the economy by increasing government expenditure.