The Case against Infant-Industry Tariff Protection

Abstract

The classical infant-industry argument for protection has long been regarded by economists as the major theoretically valid exception to the case for worldwide free trade.' What controversy there is over the concept tends to center not on analytical issues but rather on empirical matters. Some writers-for example, Myrdal (1957, pp. 96-97) and RosensteinRodan (1963)-maintain that the economic conditions on which the case is based apply to most manufacturing industries in less-developed countries, and they believe, therefore, that general protective measures are justified in these economies. Others-for example, Haberler (1936, pp. 281-85) and Meier (1964, pp. 302-3)-are much more skeptical about the pervasiveness of these conditions and stress the high costs of making incorrect decisions. Unfortunately, the views of both groups are based largely on casual empiricism. Careful, detailed investigations of the empirical issues involved in the infant-industry case have been rare.2 The purpose of this note is not to discuss these empirical matters but rather to suggest that economists have too readily accepted the theoretical arguments set forth for infant-industry protection. I will not deny that there are unique factors affecting new industries which may require market intervention by public authorities if a socially efficient allocation of resources is to be achieved. What I will question is the effectiveness of