Trade, Tariffs and Growth: Heterogeneity by Economic Structure

Abstract: This paper documents that the relationship between tariffs and growth varies significantly with economic structure. Using a panel of 161 countries from 1960 to 2019 and employing a local projections difference-in-differences strategy, I show that tariff reductions are associated with higher GDP per capita in manufacturer countries but lower GDP per capita in nonmanufacturer ones. I then reveal that these results are consistent with, and possibly explained by, heterogeneous changes in productivity, capital accumulation, and the manufacturing share of GDP. The heterogeneity is further confirmed by a comprehensive set of robustness checks. The findings suggest that the recent rise in protectionism in manufacturer countries might end up being harmful, and that existing calls for further liberalization in nonmanufacturers could have unintended consequences.

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