Infant Industries

Definition

Infant industries are emerging sectors of an economy that are not yet fully developed and require protection and support to become competitive in the global market. These industries often struggle against established foreign competitors and thus may benefit from government intervention, such as tariffs or subsidies, to help them grow. The rationale is that by nurturing these industries in their early stages, they can eventually contribute to economic growth and job creation.

5 Must Know Facts For Your Next Test

1. Governments may implement protective measures like tariffs or subsidies to shield infant industries from foreign competition, giving them time to mature.
2. The success of infant industries can lead to increased innovation, technological advancement, and greater competitiveness in the global market over time.
3. Critics argue that protecting infant industries can lead to inefficiencies and create a dependency on government support rather than fostering true competitive advantages.
4. Successful infant industries can contribute significantly to job creation and economic growth, making them vital for developing economies aiming for industrialization.
5. The debate over supporting infant industries often centers on finding a balance between necessary protection and encouraging free trade to maximize overall economic benefits.

Review Questions

• How do government interventions support the growth of infant industries, and what are the potential risks involved?
  • Government interventions such as tariffs and subsidies provide necessary protection for infant industries by reducing foreign competition, allowing these sectors time to grow and become competitive. However, the risks include creating inefficiencies within these industries, as reliance on government support might hinder innovation and productivity improvements. Additionally, prolonged protection can lead to retaliation from trading partners and can stifle broader economic growth by distorting market dynamics.
• Evaluate the role of infant industries in the context of economic development strategies for emerging markets.
  • Infant industries play a crucial role in the economic development strategies of emerging markets as they provide a pathway for diversification away from reliance on primary commodities. By investing in and protecting these nascent sectors, governments can stimulate local production, create jobs, and foster technological advancements. However, it is essential that policies aimed at supporting these industries are time-bound to avoid dependency on protectionism, ensuring that they eventually adapt to competitive pressures in the global market.
• Analyze the impact of trade liberalization on infant industries and how it influences long-term economic sustainability.
  • Trade liberalization poses significant challenges for infant industries as it exposes them to immediate competition from established foreign firms. While this pressure can drive innovation and efficiency, it can also jeopardize their survival if they are not adequately supported during their formative stages. Balancing the need for protection with the benefits of opening markets is critical; if managed well, trade liberalization can push infant industries towards sustainable growth by fostering competitiveness without allowing them to stagnate in a sheltered environment.

Related terms

Protectionism:

A policy approach aimed at shielding a country's domestic industries from foreign competition through tariffs, quotas, and other trade barriers.

Trade Liberalization: The process of reducing or eliminating trade barriers between countries to encourage free trade and enhance global economic integration.

Economic Diversification: The strategy of expanding an economy's range of products and services to reduce dependence on a limited number of sectors, thereby enhancing resilience and stability.