Tariffs and industrialization in late nineteenth century America: the role of scale economies

Abstract

Abstract I construct a general equilibrium model with economies of scale and learning-by-doing in manufacturing to quantify the effects of tariff that the US imposed on its manufacturing imports from 1870 to 1913. I find that the tariff positively contributes to US manufacturing growth, but the magnitudes are small. I also show that the cumulative welfare effect of the tariff is positive if there exists enough degree of learning-by-doing, a result contrary to the conventional wisdom that tariffs have welfare-deteriorating effects. The welfare-enhancing effect of the tariff disappears when I use a similarly constructed model, but with constant returns to scale in manufacturing. The result suggests that the assumption about technology is important for the welfare implication of the tariff.