What Do We Really Know about Protection before the Great Depression: Evidence from Italy

The impact of protection on economic growth has enjoyed a revival in recent times, with the publication of a number of comparative quantitative papers. They all share a common weakness: they measure protection as the ratio of custom revenues to import value, which biases results if demand for imports is not perfectly inelastic. In this article, we show that the measure of protection matters. We estimate the James Anderson and Peter Neary (2005) Trade Restrictiveness Index for Italy from unification to the Great Depression. We suggest a different interpretation of some key moments of Italian trade policy and we show that the aggregate welfare losses were small in the long run and mostly related to protection on sugar in the 1880s and 1890s. We document that using different measures of protection affects results of the causal relation between trade policy on economic growth in Italy and in the United States. Accordingly, we argue that a systematic re-estimating of protection in the economic history of trade policy is needed.