Argument: Protectionism is a poor way to promote infant industries

Issue Report: Free trade


  • Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 88. – “protection is an indirect an ineffective policy for promoting infants. Apart from the cost it imposes on consumers, it has two other seriously negative side-effects:first, it limits the new industry to the domestic market, since protection, by definition, raises returns only on domestic sales; and, second, it provides protection from the world’s most potent competitors. The first limitation may not matter much for countries with relatively big and rapidly growing domestic markets (such as the United States in the nineteenth century), but it is significant for most developing countries, which have tiny markets: Nigeria’s dollar purchasing power in 2000 was less than a tenth of London’s. The second limitation means that, protected from effective competition, the infants almost always fail to grow up.”
  • Fredrik Erixon and Razeen Sally “Why developing countries should liberalise trade “, 13 March 2006 “Infant-industry success in 19th-century America and Germany is contested. In North-East Asia, there is scant evidence to show that protection of infants actually led to higher social rates of return and higher overall productivity growth. Southeast Asia’s conspicuous success is in FDI-led electronics exports – a result of drastically lower tariffs and an open door to inward investment. The region’s conspicuous failures have been in highly protected sectors such as automobiles in Malaysia and Indonesia. China, like South-East Asia, has grown fast through FDI-led exports, not infant-industry protection. Finally, infant-industry protection in Latin America, south Asia and Africa has been a disaster not dissimilar to industrial planning in ex-command economies.”


See also