Protecting infant industries

It is sometimes argued that developing countries should protect their firms from international competiton (or should be allowed to do so) so that the firms can get big enough and efficient enough to compete in global markets. This is called "infant industry protection". Sometimes people say that the East Asian countries used this policy successfully. The trouble is that the firms often become dependant on the protection from competition, and do not ever become truly competitive. The result is that the population of the country have to pay more for those things than if they could buy them on world markets; and the industry never becomes a viable proposition. Penelope Hawthorne has posted a very good introduction to the infant industry debate. As she says, the overwhelming evidence from the postwar period is that open economies with more liberal trade policies grow faster and have more success with poverty reduction than closed economies.

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