Infant Industry Paper Final
Infant Industry Protection:
Economic Anchor or Springboard?
MGMT 6390 International Operations
Summer 2007
Francis X Moran
Abstract
Countries with Infant Industries protectionist policies tend to suffer lower growth and less integration into the world economy than countries that compete without a lot of protectionism. The use of protectionist policies to fix a market problem is at best highly inefficient at worst economically disastrous. This economic isolationism is very difficult to overcome and industries developed under it can never compete freely in the international market.
Infant Industry
Without overstating the obvious, not all countries are endowed with equivalent natural resources and other key factors of production, including labor and even cultural attributes. For many reasons, countries may want to foster the development of advanced industrial goods, even though such a country does not possess the necessary technology or skill sets to produce such goods. Advanced industrial countries that have invested heavily in technology and education have taken the lead in the production of many of the worlds technologically advanced products such as automobiles, computers and aircraft, in some cases because they were first movers in these industries.
For instance, when a country such as Brazil wishes to foster the development of an automobile industry, it must recognize that these domestically produced automobiles will be competing with foreign automobiles. The foreign competitors will have the advantage of scale, driving down costs and in most cases the reputation for producing quality goods in a very competitive world market. In order for the fledgling domestic producer of automobiles, in the case of Brazil, to sell any vehicles at all, prices for the first models will be far below the actual cost of production and will not likely contribute to any return on the initial investment. If Brazil as a sovereign nation feels that the
Economic Anchor or Springboard?
MGMT 6390 International Operations
Summer 2007
Francis X Moran
Abstract
Countries with Infant Industries protectionist policies tend to suffer lower growth and less integration into the world economy than countries that compete without a lot of protectionism. The use of protectionist policies to fix a market problem is at best highly inefficient at worst economically disastrous. This economic isolationism is very difficult to overcome and industries developed under it can never compete freely in the international market.
Infant Industry
Without overstating the obvious, not all countries are endowed with equivalent natural resources and other key factors of production, including labor and even cultural attributes. For many reasons, countries may want to foster the development of advanced industrial goods, even though such a country does not possess the necessary technology or skill sets to produce such goods. Advanced industrial countries that have invested heavily in technology and education have taken the lead in the production of many of the worlds technologically advanced products such as automobiles, computers and aircraft, in some cases because they were first movers in these industries.
For instance, when a country such as Brazil wishes to foster the development of an automobile industry, it must recognize that these domestically produced automobiles will be competing with foreign automobiles. The foreign competitors will have the advantage of scale, driving down costs and in most cases the reputation for producing quality goods in a very competitive world market. In order for the fledgling domestic producer of automobiles, in the case of Brazil, to sell any vehicles at all, prices for the first models will be far below the actual cost of production and will not likely contribute to any return on the initial investment. If Brazil as a sovereign nation feels that the