Shaping preferences through industrial policy: The Canary Islands in autarkic Spain

The Spanish government pursued an aggressive, decades-long, autarkic policy that effectively banned automobile imports in most of Spain between 1939 and 1986. We take advantage of the Canary Islands' unique institutional fiscal regime to evaluate the effect of this autarkic industrial policy on domestic sales of automobiles produced in Spain. The archipelago's centuries old free-port regime allowed Canarian islanders access to imports. This resulted in a very different composition of automobile sales in the Canary Islands relative to other Spanish regions. Canarians' loyalty to Spanish domestic brands only converged to those of the rest of Spain years after Spain joined the European Union, once the tariff differential across regions was phased-out. Our analysis using historical provincial automobile registration data shows that import restrictions are responsible for 33% of additional domestic sales in Spain between 1972 and 1986.