If an industry is supposed to be able to earn high returns after a. This study, though clever and carefully executed, is just one example if the infant industry argument is. The infant industry argument a popular argument against freer trade is that infant industries1 in developing countries2 cannot compete against foreign counterparts unless they are protected. This is the infant industry argument, and was first popularized by no less than john stuart mill. This paper identifies a flaw in the infant industry argument that previous literature has ignored. World economy infant industry argument 1 infant industry argument the infant industry argument suggests that an industry may be developed under the umbrella of the governments temporary protection. Question 1 according to the infant industry argume. Presents a comprehensive exposition of various possible bases for an infant industry argument for protection. This study supports infant industry argument validity by showing successful. The thesis is the backbone for all the other arguments in your essay, so it has to cover them all. It distinguishes dynamic internal economies and dynamic external economies and, in the latter case, reciprocal external economies, and externalities resulting from labour training, knowledge diffusion, and atmosphere creation. If developing countries have industries that are relatively new, then at the moment these industries would struggle against international competition. The straightforward case of infant industry maturing is erp turning negative at some maturation and growth of infant industries 1273 table 1. What are some famous examples of infant industries that.
When countries restrict trade in a number of areas they may be protecting industry, but theyre also being antiglobal. The infant industry argument suggests that by offering protection during an industry s formative years, a tariff or quota may allow the new industry to develop and prosper. The following is table 2 from the infant industry argument. Such a policy must weigh the future cost savings of an industry in which dynamic economies of scale are present with the. Infant industry argument does not justify trade barriers. Advocates of free trade respond with criticism of the infant industry argument. Proponents of protection focus on the onetime static and. Doc infant industry argument karen enriquez academia. The japanese government protected what at first were inefficient, high. Using protective tariffs and taxes adds cost for the foreign competitor sales process, and while it may give the infant industry a chance to get started, it also tends to disrupt the economics of. First formulated by alexander hamilton and friedrich list at thebeginningof thenineteenth century, thecase for infantindustryprotection has beengenerally.
Advocates of protection often argue that new and growing industries, particularly in lessdeveloped countries, need to be shielded from foreign competition. The infant industry argument a new industry argues for temporary protection until it is mature and can compete with foreign firms. They contend that costs decline with growth and that some industries must reach a minimum size before they are able to compete read more. Is the more sophisticated of the two arguments for protection. Nor is there compelling evidence of successful infant industry promotion once the costs and benefits are both taken into account instead of just the benefits. By insulating infant industries from competition, these firms never outgrow their coddled protectionist infancy, and remain childish well into adulthood. The only case in which, on mere principles of political economy. The argument claims that protection is warranted for small new firms especially in less developed countries. I demonstrate that the new packaging provided by proprotection authors cannot hide the fundamental logical flaws in the argument. The core of the argument is that nascent industries often do not have the economies of scale that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale. Pdf african countries in general have not achieved any substantial level. As mill writes, the superiority of one country over another in a branch of production, often arises only from having begun it sooner, as. The learning coefficients are estimated by fitting both the. In addition, infant industry protection can be a virtual solution to market failure which may impedes the establishment of such industry.
This paper analyzes the effect of policies on the japanese automobile industry before 1945. Why have most cases of infant industry protection failed to generate benefits in terms of economic development. The infant industry argument is an economic rationale for trade protectionism. The infant industry argument promotes protectionist measures using tariffs for a predetermined time on imported goods of the same type as a particular industry in the host country that has just begun producing those goods hence the term infant. The anatomy of classical and modern infant industry arguments jstor. This shows that comparative advantage can change over time. The infant industry argument and dynamic comparative advantage. A simple model first replicates the infant industry logic but subsequently shows that, in the presence of a traditional technology with poor growth potential, the infant industry logic is. The infant industry argument will complain that, in such cases, if the businesses involved were just given extra profits through tariffing their foreign competition, they could pay for the labor. An empirical test of the infant industry argument the basic infant industry argument maintains that. Introduction the first globalization 185019 is a wellknown period of fast economic growth for several. Protectionists must look elsewhere for a good argument for trade barriers. Solved japans experience makes the infant industry.
One of the most notable arguments for protection is known as the infant industry argument. The government should protect industries that employ a lot of poor people. The infant industry argument makes intuitive sense. The implication of the infant industry argument as played out in this example is that country a reduces trade with country b. New firms, facing low levels of output and higher average costs, may find it difficult to compete. The proposed reappraisal of the infant industry idea is based on the classical principle of comparative advantage, but places the argument in the dynamic context of modern theories. Melitz department of economics, nber, and cepr, harvard university, cambridge, ma 028, usa. Japan achieved import substitution of trucks before world war ii. The arguments for protecting domestic industry from the international competition include national defense, declining industries and infant industry argument. Question 1 according to the infant industry argument, a. The infant industry theory and its relevanc for africa. In short, infant industry trade barriers sound nice, but they invite corruption, and nobody knows what theyre doing anyway. Govers 2012 therefore, a second best alternative can be introduced which examines the rate of productivity growth of the protected industry while drawing a comparison with unprotected industries in.
Infant industry theory recognizes that a level playing field i. Bring in externalities and discuss the infant industry problem. Pdf why have most cases of infantindustry protection. Explain the national defense, declining industries, and. A new empirical test of the infant industry argument.
Depending to survive, they depend on the governments protectionism and largesse. The classical view on the argument seems too static and too restrictive, whereas the modern approaches fail to provide a convincing theoretical framework. The infant industry argument a is based on the belief that. When and how should infant industries be protected. However, if they invested in the industry then in the future they may be able to gain comparative advantage. The infant industry argument is tested against the experience of pakistans manufacturing industries. In the early 1950s, japan was a poor nation that survived by exporting textiles and toys. The infantindustry theory is the supposition that emerging domestic industries need protection against international. Infant industry protection and trade liberalization. Argument ensues whether the tariffs should be used to promote domestic mfg. According to table 1, 18 industries had a positive erp.
It shows that static economies of scale have a doubtful. The government should protect industries that are essential for national security. The origin of the theory the infant industry argument was the reaction to the uneven industrial development of great britain on the one hand, and the main european countries and the united states, on the other hand, after the. Infant industry argument, protection and manufacturing. An infant industry argument is an argument that one person cannot win a competition. Two of the better known arguments for protection are the labor and infant industry arguments. The case for protecting infant industries bloomberg. A new empirical test of the infantindustry argument. The learning coefficients are estimated by fitting both the cobbdouglas and the c. A reexamination of the infant industry argument for. A distinction needs to be drawn between this and the infant economy argument applied to industrial sector as a whole as done by list and considered later in the. Infant industries as of 1970 should have a positive erp. Import duties immediately made consumption of all products more. Malaysian automobiles and the infant industry argument.
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