WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

We study the effect of changes in domestic, regional, and international (transatlantic) trade costs on the competition between foreign and domestic manufacturers in interwar Brazil. In the great wave of globalization before 1914, international transport costs were low and domestic trade costs high. The interwar period saw a reversal: international trade costs spiked and the Brazilian state intervened to eliminate internal barriers. As the domestic market integrated, manufacturers, increasingly concentrated in the São Paulo region, extended their reach. Our claim is that the movement in trade costs provides a more compelling explanation of the emergence of domestic manufacture, its location and expansion, than does heightened tariff protection or accommodating exchange-rate policy.