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A Re-examination of the Infant Industry Argument for Protection

Author

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  • Arvind Panagariya

    (The author is Professor of Economics, Columbia University, School of International & Public Affairs, New York, NY 10027; email AP2231@Columbia.Edu>)

Abstract
Though a logically tight case for infant industry protection has never been made, proprotection authors have claimed its truth since at least its statement by Alexander Hamilton in 1791. In the 1970s and the 1980s, the argument had receded into the background following its influential critiques by trade economists James Meade, Harry Johnson and Robert Baldwin. But globalisation critics have recently revived it giving it new guises. This requires a fresh response from pro-free trade economists so that the fog is removed yet again and clear thinking restored. Accordingly, in this paper, I revisit the argument and its logical flaws. I demonstrate that the new packaging provided by proprotection authors cannot hide the fundamental logical flaws in the argument. 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. The argument is often pegged on externalities. But once the precise source of the externality is pinned down, protection as an instrument to correct it turns out to be ineffective.

Suggested Citation

  • Arvind Panagariya, 2011. "A Re-examination of the Infant Industry Argument for Protection," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 5(1), pages 7-30, February.
    • Handle: RePEc:sae:mareco:v:5:y:2011:i:1:p:7-30
    DOI: 10.1177/097380101000500102
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    References listed on IDEAS

    as
    1. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June.
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    4. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate of the Effect of Common Currencies on Trade and Income," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 437-466.
    5. Bruce Greenwald & Joseph E. Stiglitz, 2006. "Helping Infant Economies Grow: Foundations of Trade Policies for Developing Countries," American Economic Review, American Economic Association, vol. 96(2), pages 141-146, May.
    6. Corden, W. Max., 1997. "Trade Policy and Economic Welfare," OUP Catalogue, Oxford University Press, edition 2, number 9780198775348.
    7. Westphal, Larry E, 1990. "Industrial Policy in an Export-Propelled Economy: Lessons from South Korea's Experience," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 41-59, Summer.
    8. Gustav Ranis, 2003. "Symposium on Infant Industries: A Comment," Oxford Development Studies, Taylor & Francis Journals, vol. 31(1), pages 33-35.
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    Cited by:

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    More about this item

    Keywords

    Infant Industry; Learning by Doing; Import Substitution; External Economies; Protection; JEL Classification: F13; JEL Classification: O14; JEL Classification: O24; JEL Classification: O25;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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