Working Papers in Trade and Development Tariff-Growth Nexus in the Australian Economy, 1870-2002: Is there a Paradox?

This paper investigates the relationship between tariff and growth in the Australian economy over the period from 1871 to 2002. The study is motivated by the debate on the apparent ‘tariff-growth paradox’, a sign switch in the link between tariff rate and growth between the first and second episodes of globalization in world history, established from cross-country growth regressions. The long annual time series together with the recent developments in time series econometrics allows us to establish an unambiguous and stable negative relationship between tariff rates and economic growth. It is of course not possible to generalize from a single country case, but our results do cast significant doubts on the ‘tariff-growth paradox’ reported in recent cross-country studies.