Infant Industry Argument
Last Updated :
21 Aug, 2024
Blog Author :
Niti Gupta
Edited by :
Ashish Kumar Srivastav
Reviewed by :
Dheeraj Vaidya
Table Of Contents
Infant Industry Argument Definition
Infant Industry Argument is an economic concept that favors the protection of the new industries from competition on an international level until they gain maturity and become strong enough to face competition. This argument clarifies those countries that impose levies on imports because they want to protect the new industries and help them sustain themselves.
Table of contents
- The Infant Industry Argument is an economic concept that seeks to protect new industries from international competition until they become mature and competitive.
- It involves imposing import tariffs, providing subsidies, and implementing import quotas to shield domestic industries from foreign competition.
- Developing countries often adopt the infant industry argument to support and nurture their nascent industries. However, overreliance on protective measures may have negative implications for economic growth, and policymakers should consider alternative strategies to ensure sustainable development.
Example of the Infant Industry Argument
An example of how this argument can be implemented includes:
- Imposing tariffs on imports
- Providing subsidies to infant industries
- Imposing quota limitations on imports
Infant Industry Argument and Economic Growth
It is said that generally protecting the new industries following the concept of infant industry argument results in a negative impact on economic growth. On the other hand, removing such practices that act as a barrier to free trade helps the economy grow. The countries that follow the argument have to face a negative effect on their economy's growth rate.
What Protects an Infant Industry?
Several measures can be taken to protect the new industries.
- Tariffs on Imports - This is one of the most common methods adopted by various countries. Tariffs are imposed on imports and are charged either per unit basis or as a percentage of the import value.
- Quotas on Imports - A restriction is placed on the quantum of the units of a particular good that can be imported into the country during a particular time.
- Grant of Subsidies - New industries can also be protected by granting subsidies to them. The subsidy payment can be made either on a unit basis or as a percentage of the value of the goods produced. It helps the industries in the reduction of their overall cost directly.
Criticism
The practice of the infant industry argument is being criticized because the new industries to whom protection is provided become inefficient since they do not face competition from the foreign markets. Also, such protections are difficult to take back once imposed, which is not a good thing.
Advantages of Infant Industry Argument
- The country's domestic market is protected from any outside competition and thus grows.
- It helps the economy gain self-dependence in production and reduces its reliance on foreign markets.
- When the new industries are protected, and grow, they bring new employment opportunities in place.
- The argument also helps the economy so that domestic consumption of the goods boost.
Disadvantages of Infant Industry Argument
- The industries provided with protection tend to become inefficient since they do not face much competition.
- Imposing restrictions on imports from foreign countries can impact trade and business relations with such countries.
- It sometimes happens that the products of domestic markets are costlier than the same products available at less cost in the foreign market. This results in cutting the pockets of the customers.
Conclusion
The developing countries follow the infant industry argument to nurture and protect the domestic industries in their initial stages. The economies should always find other alternatives to protect the industries since this practice negatively impacts economic growth.
Frequently Asked Questions (FAQs)
The infant industry argument proposes that certain industries in developing countries need temporary protection and support from the government during their initial stages of development. This protection is aimed at helping these industries become competitive in the international market. On the other hand, dynamic comparative advantage focuses on a country's ability to adapt and develop new competitive advantages over time through research, technology, and human capital investments.
The infant industry argument holds significant implications for developing economies. By providing temporary protection and support to nascent industries, governments can foster their growth and competitiveness, which may lead to greater job creation, increased exports, and reduced dependence on imports. Critics argue that implementing protective measures can lead to inefficiencies, higher consumer prices, and potential rent-seeking behavior.
The infant industry argument was first introduced by Alexander Hamilton, the first Secretary of the Treasury of the United States, in his 1791 report to Congress titled "Report on Manufactures." Hamilton proposed protective tariffs and subsidies to support the development of domestic industries that were in their infancy stages.
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