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Protecting infant industries: Canadian manufacturing and the national policy, 1870–1913

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  • Harris, Richard
  • Keay, Ian
  • Lewis, Frank

Abstract

Infant industry protection has been the cornerstone of a debate on tariff policy that extends at least from the eighteenth century to the current day. In contrast to traditional neo-classical models of international trade that imply net negative effects, industrial organization and learning-by-doing trade models describe how protective tariffs can encourage output expansion, productivity improvement, and price reductions. Taking Canada's 1879 National Policy as a natural experiment, we explore the effect of a policy that substantially increased tariff protection to some, but not all, Canadian manufacturing industries. Using treatment intensity and difference-in-differences approaches, we find strong support for the predictions of the new trade models. After 1879, industries that received greater protection experienced faster growth in output and productivity, as well as larger price reductions. The industries targeted by the National Policy also exhibited greater returns to scale and faster learning rates. These results have important implications for the infant-industry debate in addition to addressing a central theme in Canadian economic history,

Suggested Citation

  • Harris, Richard & Keay, Ian & Lewis, Frank, 2015. "Protecting infant industries: Canadian manufacturing and the national policy, 1870–1913," Explorations in Economic History, Elsevier, vol. 56(C), pages 15-31.
  • Handle: RePEc:eee:exehis:v:56:y:2015:i:c:p:15-31
    DOI: 10.1016/j.eeh.2015.01.001
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    3. Gillian C. Hamilton & Ian Keay & Frank D. Lewis, 2017. "Contributions to Canadian economic history: The last 30 years," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1632-1657, December.
    4. Ian Keay, 2019. "Protection for maturing industries: Evidence from Canadian trade patterns and trade policy, 1870–1913," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(4), pages 1464-1496, November.
    5. Patrick Alexander & Ian Keay, 2018. "Responding to the First Era of Globalization: Canadian Trade Policy, 1870–1913," Staff Working Papers 18-42, Bank of Canada.
    6. Alexander, Patrick D. & Keay, Ian, 2018. "A general equilibrium analysis of Canada’s national policy," Explorations in Economic History, Elsevier, vol. 68(C), pages 1-15.
    7. Taylor Jaworski & Ian Keay, 2020. "Openness to Trade and the Spread of Industrialization: Evidence from Canada during the First Era of Globalization," NBER Working Papers 27716, National Bureau of Economic Research, Inc.
    8. Nathaniel Lane, 2020. "The New Empirics of Industrial Policy," Journal of Industry, Competition and Trade, Springer, vol. 20(2), pages 209-234, June.
    9. Patrick Alexander & Ian Keay, 2017. "The Welfare Effects of Protection: A General Equilibrium Analysis of Canada’s National Policy," Staff Working Papers 17-18, Bank of Canada.
    10. Nathan Lane, 2021. "Manufacturing Revolutions: Industrial Policy and Industrialization in South Korea," SoDa Laboratories Working Paper Series 2021-10, Monash University, SoDa Laboratories.

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    More about this item

    Keywords

    Infant industries; Tariffs and industrial development; Canadian development;
    All these keywords.

    JEL classification:

    • N71 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: Pre-1913
    • N61 - Economic History - - Manufacturing and Construction - - - U.S.; Canada: Pre-1913

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