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Chapter 21: Q. 27 (page 522)

What are main reasons for protecting “infant industries”? Why is it difficult to stop protecting them?

Short Answer

Expert verified

To let them develop and make competition ready.

Step by step solution

01

Step1. Introduction

Infant industries refers to those industries which have recently been setup and under development.

02

Step2. Explanation

Infant industries need protection, as they are still under the stage of development. As they are recently setup, they are small in size and lack in experience. They can only slowly expand and gain experience to compete with other big firms maybe domestically and abroad. Protection is necessary to let them develop at their pace and make them competition ready at global level. This also ensures self reliance if an industry is let to develop domestically. It hence becomes necessary to let infant industries grow, and to give them incentives to become efficient and profitable.

03

Step3. Implication

It is difficult to stop giving protection to infant industries as due to the following reasons:


1. The time period of development can not be fixed and varies from one industry to another. One industry may take longer for development than the other.

2. A large proportion of industries despite having capabilities and chances to scale die out at infant stage due to lack of incentives and support to become profitable and efficient.

3. Existence of extreme competition can make them run out of businesses even after assuming they have crossed the infant stage. Experience and scalability may not necessarily come even if they start earning profits.

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Most popular questions from this chapter

Who does protectionism protect? From what does

it protect them?

The country of Pepperland exports steel to the Land of Submarines. Information for the quantity demanded (Qd) and quantity supplied (Qs) in each country, in a world without trade, are given in Table 21.6 and Table 21.7.

a. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell?

b. What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell?

c. Sketch two supply and demand diagrams, one for each country, in the situation before trade.

d. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade.

e. If the Land of Submarines imposes an antidumping import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country.

f. Does your general answer change if the Land of Submarines imposes an import quota of 70?

Explain how predatory pricing could be a motivation for dumping.

What are the conditions under which a country may use the unsafe products argument to block imports?

Trade has income distribution effects. For example, suppose that because of a government-negotiated reduction in trade barriers, trade between Germany and the Czech Republic increases. Germany sells house paint to the Czech Republic. The Czech Republic sells alarm clocks to Germany. Would you expect this pattern of trade to increase or decrease jobs and wages in the paint industry in Germany? The alarm clock industry in Germany? The paint industry in the Czech Republic? The alarm clock industry in the Czech Republic? What has to happen for there to be no increase in total unemployment in both countries?
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