GEP Webinar: Douglas Irwin (Dartmouth College)

The economic consequences of Sir Robert Peel  (with Maksym G. Chepeliev)

Abstract:  Although Britain’s repeal of the Corn Laws in 1846 was the defining trade policy action of the nineteenth century, existing studies of its economic effects have significant shortcomings. This paper constructs an applied general equilibrium model based on a detailed input-output matrix of the British economy in 1841 and provides a consistent, unified evaluation of the Corn Law repeal on sectoral output and employment, factor prices and income distribution, international trade and the terms of trade, and overall economic welfare. The main results indicate that labor and capital gained a slight amount of income at the expense of landowners (whose income fell about 3-5 percent). Britain’s overall welfare was roughly unchanged, or perhaps fell negligibly (0.1 percent), because of the adverse terms-of-trade effects of the repeal. However, the bottom 90 percent of the income distribution benefited from the repeal whereas the top 10 percent of the distribution lost. We assess these predictions by examining how various economic outcomes evolved in the aftermath of repeal to see how well the model tracks actual events. We also evaluate Britain’s broader move to freer trade in the mid-nineteenth century.