Using a quantitative general equilibrium model, I disentangle the effects of U.S. manufacturing tariffs from other important forces to explore its devel- opment. The results suggest that, contrary to some of the popular beliefs, their quantitative effects are not so large. Not only their impact on real GDP is marginal but also the manufacturing sector is marginally affected. Even under unreasonably high learning rates, the effects are not so large. In ad- dition, the role of tariffs in generating the agglomeration effect is somewhat limited. The tariff protection initially increases the number of manufactur- ing firms in the U.S. as consumers substitute more expensive imports for cheaper domestic products. This creates the backward linkage effect but it is not fed back into the forward linkage because the tariffs raise U.S. man- ufacturing price index, making the U.S. more unattractive place for firms. These results suggest that the role of tariff protection in the development of U.S. manufacturing and economy as a whole was not so crucial, at least on more aggregate levels. Then I ask what the important forces are. And it turns out that the large increase in labour force is the single most important factor behind the development of the U.S., accounting for a huge portion of
61Williamson (1974) proposes that the large fiscal surpluses generated by the tariffs
could have ‘crowded in’ private investment and raised capital accumulation. But according to De Long (1998), whether this effect was quantitatively significant is not clear. He argues that given that the average tariff revenue during this period was about 1.8% of national product, about half of this was used to boost the national saving and investment and this would, in the long run, increase the level of national product by 1 to 2%. This includes the revenue from imposing tariffs on primary imports, so the amount of revenue due to the manufacturing tariffs would be even smaller.
the growth in manufacturing output and real GDP.
The results of this numerical exercise add contributions on the existing works that view the effects of tariff as marginal. These works include Taussig (1915), Temin (1964) and Irwin (2000) which analyse the iron industry and Irwin (2001) that analyses the economy as a whole.
The general equilibrium nature of this model allows for other interest- ing couterfactual exercises. For example, given the importance of the large increase in labour force in U.S. economic growth, I can turn my focus to this and explore the quantitative implications of mass migration. Also it is argued by Crafts and Venables (2001) that economies of scale in manufac- turing and the large reductions in transport costs during this period could have helped to industrialize some countries while de-industrialize others. By including more regions and isolating transport costs, the model can test this argument.
Admittedly, as discussed earlier, I do not consider the channel that the tariff can influence U.S. economic development through capital accumula- tion. But the effect of this is not clear. Evidences regarding this issue provide mixed results. Some suggest that the effects of the tariff on capital accumulation could not have been large. It may even be the case that the tariff retarded capital accumulation and productivity if the negative effect of tariff on capital good imports was the dominating factor, as argued by De Long (1998). And if this was the case then the overall effect of the man- ufacturing tariff would be smaller than the results generated above or even be negative.
Chapter 5
The Mass Migration and the
Development of the U.S.
5.1
Introduction
The nineteenth century was an age of mass migration and the U.S. was a major receiving country during this period. According to Vandenbroucke (2008), ‘without international migration, U.S. population in 1900 would have been 52% below its actual value’. This implies that the mass migration to the U.S. also contributed substantially to the increase of its labour force. This will be discussed more in the following sections.
Given the significance of the mass migration on U.S. labour force, the objectives of this section are twofold. First, I explore the implications of the mass migration on the quantity side of the economy. For example I ask a counterfactual question “how would the world share of U.S. manufacturing change if there was no mass migration from 1870 to 1913?” Qualitatively some of the predictions are easier to make. For example, it certainly would have contributed positively to the economy’s overall output or real GDP
as it meant increased resources for the economy. But what are harder to predict are the direction of the structural transformation and the magnitude of changes in sectoral output variables. This exercise is aimed to provide some quantitative insights on the effects of mass migration.
Secondly, I focus on the price side of the economy. More specifically, I explore how much the mass migration contributed to the convergence in Anglo-American real wage gap during this period. The works of Hatton, O’Rourke, Taylor and Williamson explores this topic. But the main dif- ference between their works and mine is that they use constant returns to scale, competitive model whereas mine assumes increasing returns in man- ufacturing.
I perform this counterfactual exercise in a simple way, using the baseline model introduced in Chapter 2. I already calibrated the changes in labour force endowments from 1870 to 1913 in Chapter 2. But here I calculate the changes in labour force implied by the no-migration-couterfactual and feed in these values instead of the actual ones. And by comparing the simulated outcome with that of the baseline outcome, I can disentangle the effects of mass migration.
A strand of papers explores the impacts of mass migration on U.S. econ- omy. This includes O’Rourke, Williamson and Hatton (1994), O’Rourke, Taylor and Williamson (1996) and Hatton and Williamson (1998) among others. And their conclusion is that a substantial part of Anglo-American factor price convergence can be attributed to the mass migration. But these works are mainly concerned with the impacts of mass migration on the labour market conditions such as the convergence of the real wages and un- employment. Vandenbroucke (2008) analyses the effects of mass migration on the westward movement of population and changes in fertility. But he concludes that the migration played a minor role in the westward movement from 1800 to 1900.
The analysis of O’Rourke, Williamson and Hatton (1994) considers the role of capital by endogenizing it in a very simple manner. They assume perfect mobility of capital and it ‘chases after’ migrants. But in this exercise I do not include capital in any manner.62