The impact of preferential market access: British imports into Canada, 1892–1903

Canada initiated the formation of the (modern) imperial trade bloc in 1897 when it extended preferential market access to imports from Britain. British goods initially received a preferential reduction of one eighth of the applicable duty, rising to one quarter in 1898 and one third in 1900. Because duties varied across imported commodities, the uniform relative margins of preference resulted in cross-commodity variation in the absolute margins of preference. This cross-commodity variation is exploited in our paper. Relying on a data set that includes over 32,000 Canadian import products, we find that a 1 percentage-point increase in the absolute margin of preference was associated with a 5.4% increase in the value of imports from Britain. Counterfactually, if Canada had not adopted a preferential trade policy, by 1903, the value of British imports into Canada would have been reduced by approximately one half.