History of World Trade since 1450, John J. McCusker, ed., New York: Gale/Macmillan, 2005
Posted: 18 Jan 2010
Date Written: 2005
There are two main types of protection costs, "natural costs", such as transportation costs, and imposed costs, such as tariffs and embargoes. Imposed costs have been used for a variety of reasons including raising state revenue and protecting domestic producers. Reducing "natural" protection costs positively impacts on development by lowering the cost of both imports and exports. The historic fall in transportation costs during the nineteenth century had a significant effect on the competitive process. Decreases in "natural" costs is largely a product of organization or technology change. There is much debate as to whether imposed protection costs have positively affected the course of economic development. Many are cynical of any positive effects, arguing that tariffs and subsidies have resulted in artificially high prices, inefficient production and lower rates of technology change. Empirical findings are mixed and show no proof of causality between imposed protection and economic growth. However evidence does shows that even when imposed protection costs are low domestic trade is still much larger than international trade suggesting that border effects (which reduce domestic cost as opposed to increasing import costs) create a "natural" barrier against foreign competition.
Keywords: Protection costs, Tariffs, Embargoes, State revenue, Development
JEL Classification: F13, F41, N70
Suggested Citation: Suggested Citation