Definition
The Infant Industry Argument refers to an economic concept advocating for government protection of new industries until they become stable and competitive. This protection, usually in the form of tariffs or subsidies, is aimed at helping these “infant” industries to develop by shielding them from international competition. The theory is that once the industry has matured, the protective measures can be removed.
Key Takeaways
- The Infant Industry Argument refers to an economic rationale that supports the provision of protectionism for new industries, especially in developing countries. This protection is usually in the form of tariffs or subsidies on imported goods in the same sector.
- This economic theory is based on the belief that new industries may find it challenging to establish themselves and grow without government intervention. This can be due to fierce competition from large, established foreign industries, or other factors such as lack of capital, appropriate technologies, or skilled labor.
- However, the Infant Industry Argument also receives criticism. Some people argue that it may foster dependency, cause inefficiency or promote corruption. Consequently, the government protection should be temporary and gradually lessened to promote competitive strategies, productivity improvements and innovation.
Importance
The Infant Industry Argument is crucial in finance and economics because it provides a rationale for temporary trade protectionism for new industries.
It suggests that new industries in their early stages may not be able to compete with established ones in developed nations due to high initial costs, need for large scale for efficiency, or lack of technological knowledge.
The argument emphasizes that these nascent industries need temporary protection, such as subsidies or tariff barriers, until they attain a level of development and competitiveness that allows them to compete fairly in the global market.
This argument acknowledges the role of state intervention in promoting economic development and industry sophistication, particularly in developing countries, and contributes significantly to policy discussions on international trade and industry development.
Explanation
The purpose of the Infant Industry Argument is to bolster the development and growth of new and emerging sectors within a nation’s economic framework. It is an economic rationale that advocates for a form of trade protection for young industries till they become mature and able to compete in the international market.
The argument asserts that nascent industries lack the economies of scale that their established competitors from other countries may possess, and as such, would likely struggle to compete on even terms without the aid of protectionist measures like tariffs or subsidies. The Infant Industry Argument is mainly used by developing countries to safeguard their budding industries from being quashed by dominant, foreign improvements.
Measures such as import restrictions and high tariffs discourage imports, thus favoring domestic production. These provisions ideally afford the ‘infant’ industries the time and resources to grow, advance, and eventually become internationally competitive.
In the long run, the success of the Infant Industry Argument relies on the assumption that these industries will eventually gain enough efficiencies to offset any initial disadvantage and thrive amidst global competition.
Examples of Infant Industry Argument
Automobile Industry in China: The infant industry argument has been used in China to protect and develop its budding automobile industry. The Chinese government established high tariff barriers to limit the entry of foreign competitors and enable the domestic automobile firms to grow. This gave domestic automobile companies a chance to gain market share, improve their production methods, and advance their technologies.
Textile and Clothing Industry in Bangladesh: The government in Bangladesh used the infant industry argument to protect its textile and clothing industry in its early stages. Through various policies, including tax exemptions, duty-free imports of machinery and raw materials, and strict import restrictions, the government managed to nurture this industry. Today, Bangladesh is one of the world’s largest exporters of garments.
Technology & Software Industry in India: The Indian government has, at various times, implemented certain limitations on foreign competition and provided incentives (such as tax breaks and land subsidies) to help its tech and software industries develop and thrive. These policies have allowed domestic companies to invest in their growth and learn new technologies, which has led to India being known as a global hub for software development and IT services.
FAQ for Infant Industry Argument
What is the concept of Infant Industry Argument?
The “Infant Industry Argument” refers to an economic theory that asserts developing countries need to protect their young, emerging industries by implementing protectionist measures such as tariffs and quotas. This argument suggests that these industries need a ‘nursery’ effect to develop and compete on a global scale.
What are the main features of the Infant Industry Argument?
Some main features include: the need for government intervention to nurture and protect young industries, the use of protectionist measures like tariffs, and the aim for these industries to eventually become globally competitive.
What are some criticisms of the Infant Industry Argument?
The most notable criticisms of the infant industry argument include: potential inefficiency due to lack of competition, possibilities of corruption under heavy government intervention, and difficulty in determining when industries are mature enough to survive without support.
Can the Infant Industry Argument apply to developed countries?
While traditionally applied to developing countries, some forms of the Infant Industry Argument can be seen in developed countries. However, it’s more relevant in the case of economies that are aiming to develop new industries.
What is the outcome of the Infant Industry Argument?
The intended outcome is for the protected industries to grow, gain efficiencies, and be able to compete with established foreign industries. However, in practice, the results vary across different industries and countries.
Related Entrepreneurship Terms
- Protectionism
- Import Tariffs
- Subsidies
- Economic Development
- Trade barriers
Sources for More Information
- Encyclopedia Britannica: It is a pioneer in creating comprehensive, reliable, and thoroughly referenced information, covering a wide range of subjects including finance and economics.
- Economics Help: This website provides a wide array of economic topics including concepts like the Infant Industry Argument. Detailed explanations are provided that are written in a manner that’s easy to understand.
- Investopedia: This is a highly reliable source for learning about finance and investing, providing comprehensive definitions, guides, charts, and other resources.
- JSTOR: It offers a digital library for scholars, researchers, and students. JSTOR weekly provides access to various academic disciplines from reputable sources such as journals, papers, etc.
