Market integration and a lower-productivity economy: the case of Australian federation and Queensland’s manufacturing sector, 1897–1906

At the time of Australian federation in 1901, Queensland’s manufacturing sector was considerably less productive than those of its southern neighbours: New South Wales and Victoria. It remained propped by a protectionist tariff policy that was the most trade-restrictive among the policies of all six colonies. The formation of the Australian customs union entailed both the free entry into Queensland of Australian goods and the replacement of Queensland’s colonial tariff by the Commonwealth’s common external tariff. Following a difference-indifferences approach across industries, this paper analyses the effect of Australian market integration, including the adoption of the common external tariff, on Queensland’s intraindustry growth in output, employment, labour productivity, total factor productivity, the number of factories, and average output per factory. This case study makes use of the annual, industry-specific output data reported by the colony—the only Australian colony to have done so both pre- and post-federation. The predictions of ‘new trade theory’ do not find much support in this case study. Nevertheless, the intensity of trade liberalisation was significantly and negatively associated with intra-industry growth in employment, to the extent that Queensland’s manufacturing employment would have been an estimated 11.4 per cent higher in 1906, but for federation.