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Misallocation and Productivity Effects of the Smoot-Hawley Tariff

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Author Info

  • Eric Bond

    (Vanderbilt University)

  • Mario Crucini

    (Vanderbilt University)

  • Joel Rodrigue

    (Vanderbilt University)

  • Tristan Potter

    (Vanderbilt University)

Abstract

Using a newly created microeconomic archive of U.S. imports at the tariff-line level for 1930-33, we construct industry-level tariff wedges incorporating the input-output structure of U.S. economy and the heterogenous role of imports across sectors of the economy. We use these wedges to show that the average tariff rate of 46% in 1933 substantially understated the true impact of the Smoot-Hawley (SH) tariff structure, which we estimate to be equivalent to a uniform tariff rate of 70%. We use these wedges to calculate the impact of the Smoot Hawley tariffs on total factor productivity and welfare. In our benchmark parameterization, we find that tariff protection reduced TFP by 1.2% relative to free trade prior to the Smoot Hawley legislation. TFP fell by an additional 0.5% between 1930 and 1933 due to Smoot Hawley. We also conduct counterfactual policy exercises and examine the sensitivity of our results to changes in the elasticity of substitution and the import share. A doubling of the substitution elasticities yields a TFP decline of almost 5% relative to free trade, with an additional reduction due to SH of 0.4%. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2012.11.002
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 16 (2013)
Issue (Month): 1 (January)
Pages: 120-134

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Handle: RePEc:red:issued:12-98

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Keywords: Hawley-Smoot tariff; Great Depression; Commercial policy; Productivity; Misallocation; Macroeconomic inefficiency;

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References

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  1. Andrew Atkeson & Ariel Burstein, 2007. "Innovation, Firm Dynamics, and International Trade," Levine's Working Paper Archive 122247000000001423, David K. Levine.
  2. Douglas A. Irwin, 1998. "The Smoot-Hawley Tariff: A Quantitative Assessment," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 326-334, May.
  3. Crucini, Mario J. & Kahn, James, 1996. "Tariffs and aggregate economic activity: Lessons from the Great Depression," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 427-467, December.
  4. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  5. Orazio Attanasio & James Banks & Sarah Tanner, 1998. "Asset Holding and Consumption Volatility," NBER Working Papers 6567, National Bureau of Economic Research, Inc.
  6. Irwin, Douglas A, 1998. "Change in U.S. Tariffs: The Role of Import Prices and Commercial Policies," American Economic Review, American Economic Association, vol. 88(4), pages 1015-26, September.
  7. Crucini, Mario J, 1994. "Sources of Variation in Real Tariff Rates: The United States, 1900-1940," American Economic Review, American Economic Association, vol. 84(3), pages 732-43, June.
  8. Hatta, Tatsuo, 1977. "A Theory of Piecemeal Policy Recommendations," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 1-21, February.
  9. Simonovska, Ina; Waugh, Michael E., 2010. "The Elasticity of Trade: Estimates & Evidence," CAGE Online Working Paper Series 13, Competitive Advantage in the Global Economy (CAGE).
  10. Harrison, Glenn W & Rutherford, Thomas F & Tarr, David G, 1993. "Trade Reform in the Partially Liberalized Economy of Turkey," World Bank Economic Review, World Bank Group, vol. 7(2), pages 191-217, May.
  11. Raj Chetty & Adam Guren & Day Manoli & Andrea Weber, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," American Economic Review, American Economic Association, vol. 101(3), pages 471-75, May.
  12. James E. Anderson & J. Peter Neary, 2005. "Measuring the Restrictiveness of International Trade Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012200, January.
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Cited by:
  1. Diego Restuccia, 2013. "Factor Misallocation and Development," Working Papers tecipa-502, University of Toronto, Department of Economics.

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