Infant Industry Argument Definition
Infant Industry Argument is an economic concept that favors protection of the new industries from competition on an international level till the time they gain maturity and become strong enough to face competition. This argument sets clarification for those countries that impose levy on the imports on the ground that they want to protect the new industries and help them sustain.
Example of the Infant Industry Argument
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For eg:
Source: Infant Industry Argument (wallstreetmojo.com)
An example of how this argument can be implemented includes:
- Imposing tariffs on imports
- Providing subsidies to infant industries
- Imposing quota limitations on importsQuota Limitations On ImportsImport quotas are a type of government-imposed restriction on the trading of a certain commodity. Such restrictions are either fixed in terms of the value or quantity of the product to be imported during a given time period (usually for one year). The government imposes such restrictions in order to benefit local producers.read more
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 which act as a barrier to free trade helps the economy to grow. The countries that follow the argument have to face a negative effect on their growth rate of the economy.
What Protects an Infant Industry?
There are several measures that can be taken in order to protect the new industries.
- Tariffs on Imports – This is one of the most common methods adopted by various countries. Tariffs are imposed on the imports and are charged either on a per unit basis or as a percentage of the value of the import.
- Quotas on Imports – A restriction is placed on the quantum of the units of a particular good that can be imported in the country during a particular time period.
- Grant of Subsidies – New industries can also be protected by granting subsidies to them. The payment of subsidy can be made either on a unit basis or as a percentage of the value of the goods produced. This helps the industries in the reduction of their overall cost directly.
Criticism
The practice of following the infant industry argument is being criticized on the ground that the new industries to whom protection is provided become inefficient due to the fact that they do not face competition from the foreign markets. Also, once imposed, such protections are difficult to take back, which is not a good thing.
Advantages of Infant Industry Argument
- The domestic market of the country is protected from any outside competition and thus grows.
- It helps the economy to gain self-dependence in terms of production and reduces its reliance on foreign markets.
- When the new industries are protected, and they grow, they bring new employment opportunities in place.
- The argument also helps the economy in the way that domestic consumption of the goods get a boost.
Disadvantages of Infant Industry Argument
- The industries that are 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 infant industry argument is being followed by the developing countries to nurture and protect the domestic industries that are in their initial stages. The economies should always try to find other alternatives also to protect the industries since this practice negatively impacts economic growth.
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