Are tariffs always bad for growth? Evidence from cross-sectoral analysis

Abstract With the advancement of communication and transportation technologies and the growing fragmentation of global production, the link between trade openness and economic growth has once again become a central but unresolved question. This study provides new evidence on this issue by employing a set of distinct tariff measures for both intermediate and final products. Unlike previous studies that rely on sector-level weighted averages or gross trade statistics, we calculate input and output tariffs at the product level using HS 6-digit codes and the EORA input-output tables, while also using both gross and value-added trade measures. The resulting dataset covers 11 sectors, nine manufacturing, mining, agriculture, and fishing, across 177 countries from 1990 to 2018, allowing for detailed consideration of country, sector, and partner-country heterogeneity. The empirical analysis proceeds in two stages: a sectoral growth model and an extended sectoral gravity model. The results show that both faced and imposed input tariffs significantly reduce sectoral value-added growth, although the effects vary considerably across countries, sectors, and trading partners. The negative impact of tariffs is particularly pronounced in agriculture, mining, and high-technology sectors when developing countries trade with developed partners. Conversely, imposed output tariffs appear to promote value-added growth in low-technology manufacturing sectors of developing countries, lending support to the import substitution argument. The extended gravity estimations further reveal a negative relationship between tariffs and bilateral forward linkages. Overall, our findings suggest that policymakers should design sector-specific trade strategies, such as reducing input tariffs in high-tech and agriculture/mining sectors and carefully designing output tariffs in low-tech manufacturing in developing countries to better capture the gains from international trade and foster economic growth.