Infant Industry Protection Theory

Infant Industry Protection: Theory and Evidence

The infant industry argument for protection suggests that newly established industries should be sheltered from foreign competition in order to give them time to become internationally competitive. This argument follows the theory of comparative advantage, which states that countries should specialize in producing the goods and services that they can produce more efficiently than other countries. In other words, countries need to develop specific strengths in order to become more competitive on the global market.

The infant industry argument is most often used to explain the short-term growth of certain industries in developing countries or regions. The idea is that the newly established industry needs time to gain experience and learn from its mistakes in order to become internationally competitive. If a newly established industry does not have this protected period of growth, then it is likely to fail and be taken over by foreign competitors. This then makes it difficult for the country or region to ever become competitive.

However, this argument does have its limitations. Firstly, it assumes that the infant industry will be able to make the necessary changes in order to be competitive on the international market. Some industries, such as textiles and other labour-intensive industries, are not able to make the required changes due to factors such as cost. Also, the arguments put forward in favour of protecting an infant industry can be used to advocate protectionism in general, regardless of the industry in question.

Despite this, the infant industry argument is often used as a justification for government protectionism. In some cases, this type of protection has allowed certain industries to become competitive on the global market. For example, South Korea and Taiwan are well-known for their efficient and competitive industries, such as electronics and cars, that were protected by the government in the past.

In addition, the infant industry argument has been one of the motivations for regional trade agreements. Some countries have used this argument to justify the establishment of trade barriers between trading partners, in order to protect their newly established industries from competition.

However, there is still a great deal of debate over the effectiveness of infant industry protection. Supporters of the argument claim that protected industries have a greater chance of becoming competitive on the global market, by building on its successes and learning from its mistakes. On the other hand, opponents argue that protection often leads to inefficiency, owing to the lack of competitive pressures, and the over-protection of inefficient firms.

In conclusion, the infant industry argument can be used as a justification for government intervention in certain industries. It suggests that in certain cases, newly established industries should be protected from foreign competition in order to give them time to become internationally competitive. However, there is still much debate over the effectiveness of this type of protection and its implications for economic efficiency. In any case, the direction governments decide to take will have an important effect on their economic development.

Infant Industry Protection Theory

Infant industry protection theory is an economic trade theory that suggests that governments should intervene in their economies and protect various industries, so they can have the opportunity to become competitive on the global stage. This theory is based on the infant industry argument, which is used to defend protectionism. It postulates that new industries need the assistance of their local governments in the form of subsidies, tariffs, or other forms of protectionism, in order to survive and prosper in the global marketplace.

Infant industry protection is generally used to help new industries to achieve economies of scale by allowing them to remain competitive for a certain period of time. During this period, the government could potentially provide financial assistance, such as tech licenses and subsidies. This assistance would allow these new industries to expand their production while maintaining high levels of efficiency. This would, in turn, allow them to become successful and be able to compete on the global stage.

Infant industry protection theory is not without its drawbacks, however. It can be argued that protectionism can create economic stagnation and reduce innovation and export opportunities. Additionally, industries may become too dependent on government support and be less likely to respond to market changes.

Ultimately, infant industry protection theory could have both positive and negative implications for economies. On the one hand, it could protect new industries, allowing them to compete and thrive on the global market. On the other hand, it has the potential to create economic inefficiencies and reduce competitiveness. For this reason, policymakers must be careful when weighing the pros and cons of this policy.