Infant industry argument

Thus, one of the reasons for protecting an infant industry is to stimulate the learning effects that will improve productive efficiency. Alternatives to tariff protection.

Infant Industry Theory

In some years prices are very high, in other years the prices are very low. Though prices for these foods in Infant industry argument exceed global prices, the farmers and processors have had the security of a stable market to finance their operations.

This is the case then where domestic producers simply could not produce the product cheaply enough to compete with firms in the rest of the world.

Although a wealthier country may be able to smooth income by effectively using insurance programs, a poor country might face severe problems, perhaps as severe as famine, in years when the prices of their comparative advantage goods are depressed.

A Infant industry argument producing a similar product in less a developed country, on the other hand, would not have the same production technology available to it. There is an argument for viewing national patent systems as a cloak for protectionist trade policies at a national level.

Infant Industry Argument

Even when infant industry protection is well—intentioned, it is difficult for governments to know which industries they should protect; "infant" industries may never "grow up" relative to "adult" foreign competitors.

This is especially true if they lack access to capital markets and find it harder to borrow for investment, Tariffs help provide a domestic market for the new firms.

Welfare loss of tariff protection. Furthermore since the LDC firms would improve their productive efficiency over time, the protective tariffs could be gradually reduced until eventually, when the tariffs are eliminated, they would compete on an equal footing with the developed country firms.

In such cases, if these industries are subjected to the international markets then their products would not be able to compete with the price offered by the highly mechanized and advanced industries producing the same output and probably better quality too.

Tariff rates usually vary according to the type of goods imported. If prices are raised sufficiently, the domestic firms would be able to cover their higher production costs and remain in business.

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.

To the extent that there are positive spillovers or externalities in production, firms are unlikely to take account of these in their original decisions. Although a wealthier country may be able to smooth income by effectively using insurance programs, a poor country might face severe problems, perhaps as severe as famine, in years when the prices of their comparative advantage goods are depressed.

Developed country firms have been in business longer and over time have been able to improve their efficiency in production. But American growth during its protectionist period was more to do with its abundant resources and openness to people and ideas.

November 28, The infant industry argument states that developing countries are justified to put tariffs on imports if they are seeking to develop new industries and diversify their economy.

It can be difficult for a government to choose which industries to protect and develop. Protection of these LDC firms, perhaps in the form of an import tariff, would raise the domestic price of the product and reduce imports from the rest of the world.

In this case, it is good to diversify the economy. In this theory one asks what is best for a country i. November 28, The infant industry argument states that developing countries are justified to put tariffs on imports if they are seeking to develop new industries and diversify their economy.The Infant Industry Argument and Dynamic Comparative Advantage One of the most notable arguments for protection is known as the infant industry argument.

Protectionism

The argument claims that protection is warranted for small new firms especially in less developed countries. Infant Industry Argument is applied on economies for the sake of correcting the distortions of short lived nature. According to this argument, the government protection to the industry holds good for a certain period of time and after that the market force is.

The infant industry argument states that developing countries are justified to put tariffs on imports if they are seeking to develop new industries and diversify their economy. In particular, there is a justification for placing tariffs on industries where a country has a latent comparative advantage.

what is the infant industry argument for protection from international trade D. Domestic firms must be protected until they gain a comparative advantage The infant.

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Infant Industry Theory promotes an economic policy that protects young industries in less developed economies until they become established, financially stronger, and capable of. Infant-industry theorists argue that industries in developing sectors of the economy need to be protected to keep international competitors from damaging or destroying the domestic infant industry.

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Infant industry argument
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