The infant industry argument is one of the most famous arguments for protection against free international trade. The argument claims that protection is justified for new industries especially in less developed countries in order to establish them sufficiently. These infant industries are unable to compete with the old and well established industries located mostly in developed countries. The main reasons are differences in efficiency in production, information, knowledge and capital endowment (Suranovic, 2004). Since Friedrich List (1789-1846) had developed this argument at the beginning of the Nineteenth Century, since then infant industry protection has been immensely criticized among economists. Most economists agree to some reasonable circumstances that would justify the temporary and limited protection of an infant industry (Melitz, 1999). Nevertheless, there is a big community of opponents who claim that protection is likely to be only the second-best policy rather than the firstbest policy (Suranovic, 2004). Despite this opposition, almost all countries of the world have developed their industrial base by applying to infant industry protection (Krugman and Obstfeld, 2003 and Shafaeddin, 1998). This essay aims to examine Friedrich List’s theory of the infant industry argument in detail. First, it explores the origin of List’s theory by giving a general explanation and some background information, by identifying the pattern of protection and by examining the justification for his theory. Secondly, it critically examines List’s theory under a contemporary perspective by discussing the current issues of the infant industries argument. Finally, it asks the question, if List’s theory is still valid.
Table of Contents
- Introduction
- The Origin of List's Theory
- Pattern of Protection of List's Theory
- Justification of List's Theory
- Contemporary Perspectives of List's Theory
- Future comparative advantage
- Domestic Market Failure and “Pseudoinfant” industries
- Imperfect Capital Markets
- Appropriability Argument / External economies
- Political Economy Problem
- Example for a general disagreement with the infant industry argument
- Example for a general agreement with the infant industry argument
- Conclusion
Objectives and Key Themes
This essay aims to thoroughly examine Friedrich List's theory of the infant industry argument. It will explore the origins of List's theory, providing background information and analyzing his justification for protectionism. Furthermore, it will critically assess List's theory from a contemporary perspective, discussing current debates surrounding the infant industry argument and its continued relevance.
- The historical context and origins of Friedrich List's infant industry argument.
- List's proposed pattern of protection for infant industries.
- Contemporary critiques and defenses of the infant industry argument.
- The role of market failures and political economy in shaping infant industry policies.
- The lasting impact of List's ideas on global industrial development.
Chapter Summaries
Introduction: This introductory chapter establishes the infant industry argument as a central theme in international trade debates. It highlights the ongoing controversy surrounding the justification for protectionism, particularly for nascent industries in developing countries. The chapter emphasizes the efficiency differences, informational gaps, and capital endowment disparities that often hinder these industries' competitiveness against established firms in developed nations. It sets the stage for a detailed examination of Friedrich List's theory and its contemporary relevance.
The Origin of List's Theory: This chapter delves into the life and work of Friedrich List, a critic of classical economic theory who developed the infant industry argument in response to the uneven industrial development between Great Britain and other nations. It explores List's opposition to Adam Smith's free-trade doctrines, highlighting List's emphasis on national interests and the need for a developmental stage-based approach to trade policy. The chapter outlines List's stages of economic development—savage, pastoral, agricultural, agricultural-manufacturing, and agricultural-manufacturing-commercial—and explains how infant industry protection becomes necessary to navigate the transition from agricultural to industrial economies. List's critique of Smith's universal theory is central, emphasizing the importance of the nation-state in economic development. The chapter lays the groundwork for understanding the theoretical underpinnings of List's argument.
Contemporary Perspectives of List's Theory: This chapter examines the infant industry argument through a contemporary lens, analyzing its strengths and weaknesses in light of modern economic theory and empirical evidence. It discusses various arguments for and against infant industry protection, including considerations of future comparative advantage, domestic market failures (such as imperfect capital markets and issues with appropriability of returns to innovation), and the inherent political economy challenges involved in implementing such policies. The chapter likely provides examples of both successful and unsuccessful applications of infant industry protection to illustrate the complexities of implementing this policy effectively. The discussion here would likely contrast theoretical arguments with real-world evidence, offering a nuanced and critical analysis of List's ideas in the present context.
Keywords
Infant industry argument, Friedrich List, protectionism, international trade, comparative advantage, market failure, political economy, economic development, industrialization, free trade.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this text?
The text focuses on Friedrich List's theory of the infant industry argument, a central theme in international trade debates. It explores the origins of List's theory, its justification for protectionism, and its relevance in contemporary economic discussions.
What are the key themes explored in the text?
Key themes include the historical context and origins of List's infant industry argument, his proposed pattern of protection, contemporary critiques and defenses of the argument, the role of market failures and political economy in shaping infant industry policies, and the lasting impact of List's ideas on global industrial development.
What are the main sections covered in the text?
The text is structured into sections covering an introduction, the origin of List's theory (including its pattern of protection and justification), contemporary perspectives of List's theory (including future comparative advantage, domestic market failures, political economy problems, and examples of agreement and disagreement with the infant industry argument), and a conclusion. Each section provides a detailed analysis of the relevant aspects of List's theory and its contemporary relevance.
What is Friedrich List's infant industry argument?
Friedrich List's infant industry argument proposes that developing nations may need temporary protectionist measures (like tariffs) to help their nascent industries compete with more established industries in developed nations. List argued that these "infant" industries need time to mature and become competitive before facing the full force of international competition. This is in contrast to Adam Smith's free-trade doctrines.
What are some contemporary critiques and defenses of the infant industry argument?
Contemporary critiques often center on issues like market failures (e.g., imperfect capital markets, difficulties in appropriating returns to innovation), political economy challenges (e.g., rent-seeking behavior), and the potential for inefficiency. Defenses often highlight the importance of considering future comparative advantage and the need to address domestic market failures that might hinder the development of infant industries. The text explores these arguments in detail, using examples to illustrate both successful and unsuccessful applications of infant industry protection.
What is the role of market failures in the infant industry argument?
Market failures, such as imperfect capital markets (difficulty in obtaining financing) and problems with appropriability (difficulty in protecting intellectual property), are often cited as justifications for infant industry protection. These failures can prevent promising industries from developing even if they have long-term comparative advantage.
What is the role of political economy in the infant industry argument?
The political economy aspects involve the challenges of designing and implementing effective infant industry policies. This includes the risk of rent-seeking behavior (where firms seek protection not based on genuine economic need but for self-interest) and the difficulty of balancing the interests of various stakeholders.
What are the key chapters and their summaries?
The text provides chapter summaries that detail the introduction's establishment of the infant industry argument; the origin chapter's exploration of List's life, work, and critique of Smith; and the contemporary perspectives chapter's analysis of the argument's strengths and weaknesses in light of modern economic theory and evidence.
What are the keywords associated with this text?
Keywords include: Infant industry argument, Friedrich List, protectionism, international trade, comparative advantage, market failure, political economy, economic development, industrialization, and free trade.
- Citation du texte
- Matthias Hilgert (Auteur), 2005, International Trade: Friedrich List's Theory of the infant industry argument, Munich, GRIN Verlag, https://www.grin.com/document/38226
