Winners and Losers: The Asymmetric Impact of Tariff Protection on Late-Nineteenth-Century Swedish Manufacturing Firms

Cross-country regressions suggest that protectionism supported industrialization. I leverage novel and highly granular data covering Swedish manufacturing firms to estimate the impact of Sweden’s shift toward protectionism after 1891 on establishment-level development. Using mainly two-way fixed effects regressions, I show that tariff increases had a heterogeneous impact across establishments: initially low-productivity establishments increased their productivity, while initially high-productivity establishments experienced a relative decline. I suggest that tariffs differentially shaped the incentives of managers in low- and high-productivity establishments to innovate and (re)organize production. Consistent with modern trade theory, heterogeneous establishment-level dynamics underlie a potential tariff-growth paradox.