An infant industry is a term used in economics to describe an industry that is in its early stages of development. In other words, an infant industry is a newly established industry. Therefore, infant industries lack the experience and size to compete effectively against established competitors abroad.
What would be an example of an infant industry?
The infant industry has a wide value chain to other industries. If it develops, it also spurs other industries to develop. Oleochemicals from palm oil, for example, are widely used in the pharmaceutical, rubber, plastics, paints, and lubricants industries.
When and how should infant industries be protected?
the infant-industry theory was later improved on by the economist and philosopher John Stuart Mill, who said that infant industries should only be protected if they can mature and then become viable without protection.
What is the infant industry arguments all about?
The infant industry argument is an economic rationale for trade protectionism. The core of the argument is that nascent industries often do not have the economies of scale that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale.
What does infant industry mean?
The infant-industry theory is the supposition that emerging domestic industries need protection against international competition until they become mature and stable. In economics, an infant-industry is one that is new and in its early stages of development and, thus, not yet capable of competing against established industry competitors.
What is the baby industry called?
In economics, an infant industry is a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established competitors abroad.
What is meant by the infant industry argument?
The infant industry argument is an economic rationale for trade protectionism. The core of the argument is that nascent industries often do not have the economies of scale that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale.
What are the benefits of infant industry argument?
Advantages of Infant Industry Argument 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.
What is fledgling or infant industries?
New / fledgling industry that may require temporary government protection from overseas competition (for instance through the setting of import tariffs) in order to develop. Share by Email.
What is the meaning of dumping in economics?
What is dumping? Dumping is, in general, a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.
What is meant by the infant industry argument quizlet?
What is meant by the infant industry argument? The blocking of imports for a short time, to give the affected industry time to mature, before eventually it starts competing on equal terms in the global economy.
What are main reasons for protecting infant industries Why is it difficult to stop protecting them?
Why is it difficult to stop protecting them? Infant industries are protected so that they get time to develop. It is difficult to stop protecting them because political pressure is very high in favor of protecting them.
What are the different types of tariffs?
Common Types of TariffsSpecific tariffs.Ad valorem tariffs.Licenses.Import quotas.Voluntary export restraints.Local content requirements.
What are free traders?
By The Editors of Encyclopaedia Britannica • Edit History. Table of Contents. free trade, also called laissez-faire, a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports).
How does the government protect the infant industry?
A government planner can protect the infant industry using domestic production subsidies, tariffs, or quotas in order to maximize domestic welfare over time.
Which type of protection will be given to infant industries?
What Is the Infant-Industry Theory? The infant-industry theory states that new industries in developing countries need protection against competitive pressures until they mature and develop economies of scale that can rival their competitors'.
What is the infant industry argument for protection from international trade quizlet?
What is the infant-industry argument for protection from international trade? Domestic firms must be protected until they gain a comparative advantage.
What is infant industry argument for protection in international business?
The infant-industry theory states that new industries in developing countries need protection against competitive pressures until they mature. This theory, first developed in the early 19th century by Alexander Hamilton and Friedrich List, is often a justification for protectionist trade policies.
What is the economic argument in favor of protecting infant industries quizlet?
The infant industry argument suggests that protecting infant industries from foreign competitors will allow them time to become large enough to enjoy economies of scale.
What are the 5 main arguments in favor of restricting trade?
The most common arguments for restricting trade are the protection of domestic jobs, national security, the protection of infant industries, the prevention of unfair competition, and the possibility to use the restrictions as a bargaining chip. We will look at each of those arguments in more detail below.
What is an example of an infant industry?
Consider a country that traditionally imports cars from overseas and has no domestic production of cars. The creation of a domestic automotive industry would be an example of an infant industry.
How is an Infant Industry Protected?
There are a number of ways to protect an infant industry. The three most common methods are:
Why is infant industry protectionism difficult?
Once an industry gains government protection, it may be politically difficult to remove the protective measures later on due to vested interests.
What are tariffs in agriculture?
Tariffs can either be (1) a fixed dollar charge for each unit imported or (2) a percentage tax levied on the value of the imported good. The Smoot-Hawley Tariff of 1930 is a famous example of tariffs aimed at protecting the U.S. agriculture industry from European agricultural imports. 2. Production subsidies.
What is the infant industry argument?
The infant industry argument is commonly used to justify domestic trade protectionism. The infant industry argument was initiated by Alexander Hamilton in 1791 when he argued for the protection of industries in the United States from imports from Great Britain. Later on, Friedrich List published his book, National System of Political Economy, ...
Why do new industries require protection?
The main rationale behind the infant industry argument is that new industries require protection because they lack the economies of scale. Economies of Scale Economies of scale refer to the cost advantage experienced by a firm when it increases its level of output.The advantage arises due to the. that competitors possess.
What is production subsidy?
A production subsidy is a payment made by the government to producers; production is subsidized by the government. Similar to tariffs, production subsidies can either be (1) a fixed dollar subsidy for each unit produced or (2) a percentage subsidy on the value of the produced good. 3. Quotas on imported goods.
What is infant industry theory?
The infant-industry theory is an economic rationale with economic policy to protect domestic industries against international competition until they attain the same economies of scale. Infant industries are young companies or businesses that are still in the early stages of development. At this stage, they are not in a position to compete against the already established competitors in the industry. So, the infant-industry theory looks after the upcoming industry until they are mature, stable, and capable of surviving the competition pressure.
How is the Infant-Industry Theory Applied?
infant industry is usually vulnerable at the time of entry into the world. It is at its stages of development and, therefore, too weak to withstand economic pressures and market challenges. They lack the assets and potentials that the established competitors have in place to be able to compete in the global market.
How can governments protect the infant industry?
The practical way of governments protecting the infant industry is by applying several tools like quotas, tariffs, and duty taxes. These tools make it difficult for international competitors to beat or match the infant industrys prices. Taxes and tariffs usually increase competitors costs. By doing so, the new industry gets a chance of building efficient operations and establishing its existence in the market.
What Protects an Infant Industry?
There are several measures that can be taken in order to protect the new industries.
What is infant industry argument?
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.
Why is the infant industry argument being criticized?
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.
How does protecting the new industries impact the economy?
On the other hand, removing such practices which act as a barrier to free trade helps the economy to grow.
Why are industries that are provided with protection tend to become inefficient?
The industries that are provided with protection tend to become inefficient since they do not face much competition.
Why is it important to protect the new industries?
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.
What is tariff on imports?
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.
Why is the infant industry less efficient?
Production is less efficient because it has not reached economies of scale.
What are the criticisms of the infant industry?
Criticisms of the infant industry argument. Protectionism makes the infant industry inefficient. Due to their high dependence on government policies, these industries tend to have less incentive to be efficient and competitive. Also, protectionism often invites reactions from other countries .
What is the infant industry argument?
What’s it: The infant industry argument is an economic rationale for the need for trade protectionism. The idea behind this argument is that the new industry is vulnerable to competition. It requires protection from international competitors until they are mature, stable, and have stronger competitiveness.
How can Indonesia reduce the impact of falling CPO prices on domestic exports?
If the downstream industry develops, Indonesia can reduce the impact of falling CPO prices on domestic exports. At their early stage, downstream industries have to struggle to compete with foreign rivals, which is usually one step ahead in technology and competitiveness.
What Is The Infant-Industry Theory?
Understanding The Infant-Industry Theory
- The infant-industry theory is the supposition that emerging domestic industriesneed protection against international competition until they become mature and stable. In economics, an infant-industry is one that is new and in its early stages of development and, thus, not yet capable of competing against established industry competitors. The infant-industry theory, first developed i…
Special Considerations
- According to a paper in the Journal of International Economics, titled "When and how should infant industries be protected?" the infant-industry theory was later improved on by the economist and philosopher John Stuart Mill, who said that infant industries should only be protected if they can mature and then become viable without protection. Charles Francis Bastable then added a s…
What Is An Infant Industry?
- An infant industry is a term used in economics to describe an industry that is in its early stages of development. In other words, an infant industry is a newly established industry. Therefore, infant industries lack the experience and size to compete effectively against established competitors abroad. An infant industry is characterized by a lack ...
Rationale Behind The Infant Industry Argument
- The main rationale behind the infant industry argument is that new industries require protection because they lack the economies of scalethat competitors possess. Infant industries lack the capabilities to leverage their existing production and require protection until they can acquire similar economies of scale. In addition, there are various other reasons behind the infant industr…
Arguments Against Infant Industry Protectionism
- There are several criticisms of the infant industry argument: 1. Infant industry protectionism may encourage industries to be inefficient. Developing industries that have protection may lack the incentive to be efficient and competitive. 2. Infant industry protectionism may result in retaliation from other countries. 3. Once an industry gains government protection, it may be politically diffic…
Additional Resources
- CFI offers the Financial Modeling & Valuation Analyst (FMVA)®certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: 1. Business Life Cycle 2. Fiscal Policy 3. Gross Domestic Product (GDP) 4. Trade Barriers