Economic Aspects of Australian Federation: Trade Restrictiveness and Welfare Effects in the Colonies and the Commonwealth, 1900–3*

Abstract

Australian Federation in 1901 entailed the formation of a customs union among its 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. Using a dataset of 3,584 commodity- and colony-disaggregated imports, this paper estimates trade restrictiveness indices and welfare losses for the Australian colonies and Commonwealth. Despite the high external tariff post Federation, the customs union produced a net static welfare gain conservatively estimated to have been 0.17 per cent of GDP.