post-liberalization growth patterns. Countries that liberalized then continued
to deepen trade reforms over time appeared to do the best.
Historical case studies
In Britain trade liberalization after 1846 was accompanied by an acceleration
in the growth of foreign trade and in economic growth. Export growth
increased from 5 per cent annually between 1830 and 1845 to over 6 per cent
until 1860. Economic growth between 1845 and 1860 averaged 2.4 per cent
which was the highest that Britain would attain until after 1945. This, the
outcome of the world’s first free-trade experiment, was positive but was based
on a unique starting point. It occurred long after the onset of the industrializa-
tion in Britain that had been achieved behind high tariff barriers. Britain in
1846 was the overwhelmingly dominant world manufacturing nation and
could rely on exporting manufactured goods from sectors with increasing
returns to scale (Bairoch, 1993; Chang, 2002). Britain also possessed an enor-
mous colonial empire to which it had guaranteed access for both exports and
imports. The evidence about whether trade liberalization also benefited the
contemporary and more backward economies of Europe is more complicated.
At first glance there appears to be a negative relationship between trade
openness and economic growth in nineteenth-century Europe. The liberal
phase of European trade policies after 1860 reached its height between 1866
and 1877 and occurred with the onset of a generalized economic slowdown.
Per capita GDP growth in European countries slowed from an annual rate of
1.6 per cent in the 1850s and 1860s to 0.6 per cent for the next two decades.
This can be explained by the flood of imported grain leading to slower growth
in agriculture which then still accounted for a large share of GDP across
Europe. In France,for example, imports of wheat rose from 0.3 per cent of
domestic production in the 1850s to 19 per cent in the late 1880s and in
Belgium from 6 per cent in 1850 to 100 per cent in 1890. The problem was that
offsetting exports of manufactured goods from Europe which could have
sustained growth did not occur. Between the 1870s and 1880s the US as the
main supplier of grain to Europe did not increase imports of European manu-
factures. In 1870 continental Europe’s trade deficit with North America repre-
sented 5–6 per cent of imports from that region and this reached 32 per cent by
1890 and 59 per cent by 1900. The US was growing and industrializing rapidly
behind high levels of import tariffs (Bairoch, 1993). The rise of trade protec-
tionism in Europe from the 1880s onwards coincided with more rapid growth
of GDP and trade. Average annual GDP growth increased from 1.3 per cent to
3.1 per cent in Germany during the ten years after trade protection increased in
- Similar increases occurred in Sweden, France, Belgium and Denmark.
Export growth tended to slow in the ten years immediately after increased
trade protection but after the passing of another decade showed significant
acceleration across Western Europe (Bairoch and Kozul-Wright, 1996:22).
Examining all of this with a broad statistical test shows that there is a clear
positive correlation between tariff rates and economic growth among 17
280 Patterns and Determinants of Economic Growth