The Economic Consequences of Sir Robert Peel: A Quantitative Assessment of the Repeal of the Corn Laws Douglas Irwin (Dartmouth College, NBER) Maksym Chepeliev (Purdue University) What were the Corn Laws? • Corn = Wheat • Import tariff increased sharply in 1815 • Hugely controversial • Class legislation, classical economists’ debate (Ricardo, Malthus, everyone) • Gives rise to Anti-Corn Law League in 1843 (Richard Cobden) • Irish famine in 1845 • Prime Minister Robert Peel proposes repeal in January 1846 • Parliament repeals Corn Laws in May 15, 1846 – 175 YEARS AGO! • Splits Conservative Party, Peel resigns Corn Law debate • Economic drama! • Ricardo versus Malthus • Public square drama! • The Anti-Corn Law League, The Economist • Political drama! • Peel splits the Conservative party Empirical studies of Britain’s trade reforms • Corn Law Repeal • Williamson (1990), Ward (2004) • Shortcomings • Linear GE (small country), or partial equilibrium model • Poorly estimated elasticities, or small country assumption • New geography paper: Heblich, Redding, and Zylberberg (2020) • British Free Trade • McCloskey (1980), Irwin (1988), Dukhilia and Nye (2004) What was the economic impact of repeal? • Effect on overall welfare • Efficiency gains versus large country terms-of-trade effects • Effect on income distribution • How much redistributed away from landowners toward workers, capital? • Effects on different income groups • Not just factor ownership but consumption patterns across classes • Fajgelbaum & Khandelwal 2016, Artuc, Porto, & Rijker 2019) Contribution here • 18 sector general equilibrium model • Social accounting matrix from Horrell, Humphries, and Weale (1994) • Integrated and consistent evaluation of outputs, goods prices, factor prices, trade, terms of trade, economic welfare • UK as a large country • Impact on two income groups (top 10%, bottom 90%) • Take into account factor ownership and differential consumption patterns • Earnings and expenditure channels • Repeal the Corn Laws (28% tariff on imported grain) • Ex post evaluation of the model with actual outcomes Why was Britain a large country? • Share of world manufacturing production • In 1840, Britain accounts for 37% of world textile production • Exports of cotton textiles • Imports of cotton (55% of world’s cotton consumption) • Imports of wheat Distributional consequences Corn law tariff – sliding duty Tariff and imports 100 7000 90 6000 80 70 5000 60 4000 50 3000 40 000 of quarters 30 ad valorem rate tariff ad valorem 2000 20 1000 10 0 0 1829 1832 1835 1838 1841 1844 1847 1850 1853 1856 1859 Imports of wheat Average tariff on wheat Modelling framework: data inputs 1841 Social accounting matrix for Britain from Horrell et al. (1994). Split agriculture into grains and pastoral (Williamson, 1990) -> total of 18 sectors . Represent import duties. Split value-added into capital, labor and land payments (Horrell et al., 1994; Clark, 2010). Split households (expenditure and income) into two categories based on the income level -> top 10% and bottom 90% (Lindert, 1986; Feinstein, 1998). Output structure Great Britain 1841 UK 2014 Computable General Equilibrium (CGE) model Static single-country CGE model Imports Exports 18 sectors + two HHs types Goods and services Purchase of (18 types) Supply of Capital & labor perfectly mobile goods and Intermediate inputs goods and services services Land imperfectly mobile Representative households Taxes Enterprises (two types) (18 industries) Britain is modelled as a large open (max utility) (max profit) Income from production economy factors Purchase of production CES/CET specifications factors Production factors: Implemented in GAMS/MPSGE Supply of production factors labor, land and capital Circular flows in the constructed model Elasticities • Demand CES: σ = 0.5 • Armington: σ = 2-4 (recent meta-analysis by Bajzik et al.(2020) suggests the value of 2.5-5.1) • Export demand (textiles & other commodities): 5 (low) – 10 (high) • Import supply (cotton): 1 (low) – 3 (high) • Import supply (wheat & other commodities): 5 (low) – 10 (high) Additional sensitivity analyses: • Small open VS large country assumptions Nesting structure of the production block of the model • Land mobility across sectors • Armington elasticity values Results from Repeal of Corn Law (1) Policy shock: removal of a 28% tariff on imported grains. Muted impact of the repeal on domestic grain prices: ↑ in prices of imported grain (finite elasticity of supply by exporters). Limited impact of the Repeal on the expansion of British Limited Dom<->Imp substitution (higher Armington (e.g. 10-50)->larger manufacturing (point highly emphasized by Richard impact, though ↑ in import prices). Cobden’s Anti-Corn Law League). The initial share of imports in domestic consumption is only 10-15%. Results from Repeal of Corn Law (2) Policy shock: removal of a 28% tariff on imported grains. Unequal factor ownership Key issue at stake-> Effect on domestic income distribution? David Ricardo attacked the Corn Laws for benefitting owners of land at the expense of workers and capital owners. To what extent is it the case? Sources: Lindert (1986) and authors’ estimates. Two classes Expenditure structure Income structure Sources: income from Lindert (1986), expenditure from Feinstein (1998). Distributional impacts Policy shock: removal of a 28% tariff on imported grains. An Ex Post Assessment of the Corn Law Repeal (1) Note: The reported Irwin-Chepeliev results are for an average of the high and low elasticity scenarios. The reported Williamson results are for the large country assumption. Production and imports 20,000 18,000 What actually happened in terms of 16,000 wheat production and imports: 14,000 In the 1830s imports were 15% of domestic consumption; 12,000 Repeal in 1846 -> imports ↑, 10,000 production ↓. British production 8,000 Post-1849 -> share of imports in British imports domestic consumption ≈ 40%. thousands of quarters 6,000 Significant adjustments in the 4,000 agricultural sector due to the Repeal -> move to mixed farming. 2,000 0 1829 1832 1835 1838 1841 1844 1847 1850 1853 1856 1859 An Ex Post Assessment of the Corn Law Repeal (2) Note: The reported Irwin-Chepeliev results are for an average of the high and low elasticity scenarios. The reported Williamson results are for the large country assumption. Comparisons are largely impacted by the potato famine -> greater demand for wheat and Commercial Crises of 1847 -> collapse in wheat prices. Wheat prices did not collapse Gazette price of wheat 100 Reduced Suspended Reimposed 1 s duty 90 80 70 60 50 40 shillingsimperial per quarter 30 20 10 0 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct 1845 1846 1847 1848 1849 Conclusion: Impact of Corn Law Repeal • Big impact on quantities, small impact on prices • Small (negative!) impact on aggregate welfare • adverse terms of trade effect • “Progressive” distributional impact – bottom 90% benefit • Consistent with Fajgelbaum & Khandelwal (2016).