Tariffs and Growth: Heterogeneity by Economic Structure

This paper provides novel empirical evidence that the dynamic medium-term relationship between trade liberalization and growth varies significantly with economic structure. Using a local projections difference-in-differences (LP-DiD) approach with data from 161 countries between 1960 and 2019, I show that tariff reductions are associated with higher income per capita in manufacturer countries but, notably, lower income in nonmanufacturer ones. This result is confirmed through a comprehensive set of robustness checks, including a clean controls analysis, the use of a recent dynamic panel estimator, and extensive tests for potential endogeneity threats. Testing for mechanisms, I show that the baseline heterogeneity is also consistent with heterogeneous changes in productivity, capital accumulation, and the manufacturing share of GDP. These findings suggest that the recent rise in protectionism in manufacturer countries might be harmful, while existing calls for further liberalization in nonmanufacturers could have unintended consequences.