Economic Aspects of Australian Federation: Trade Restrictiveness and Welfare Effects in the Colonies and the Commonwealth, 1901-3

The federation of Australia in 1901 entailed the formation of a customs union among its six formerly tariff-autonomous colonies. Although the elimination of tariff barriers to intercolonial/interstate trade would have been welfare-enhancing, Australia’s common external tariff was set considerably higher than the tariffs on external goods imported by the pre-federation colonies, implying a welfare reduction. Relying on a newly compiled dataset of 3,584 commodity- and colonydisaggregated imports, this paper estimates trade restrictiveness indices (TRIs) and static welfare losses for the six Australian colonies in 1900 and for the Commonwealth of Australia in 1903. This paper finds that the TRIs substantially exceeded average weighted tariffs in the colonies and in the Commonwealth. Moreover, this paper finds that, despite the high external tariff legislated by the newly formed Australian Commonwealth, the customs union produced an enormous net static welfare gain, estimated to have been 1.16 per cent of Australian GDP.