Infant-Industry Theory

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Definition of 'Infant-Industry Theory'

The infant-industry theory is a theory in international trade that argues that a new industry in a country should be protected from foreign competition until it is able to compete on its own. The theory is based on the idea that new industries need time to develop and grow, and that they will not be able to compete with established foreign industries if they are exposed to competition too early.

The infant-industry theory was first proposed by Alexander Hamilton in his 1791 book, "Report on Manufactures." Hamilton argued that the United States needed to protect its new industries from British competition in order to give them time to develop and grow. He believed that the United States could eventually compete with Britain on its own, but that it would need help in the early stages.

The infant-industry theory has been used to justify a variety of protectionist policies, including tariffs, quotas, and subsidies. However, the theory has also been criticized by economists who argue that it is not always effective in promoting economic growth.

One of the main criticisms of the infant-industry theory is that it is difficult to determine which industries are truly "infant" and which are simply not competitive. This is because industries can take many years to develop, and it can be difficult to predict which ones will be successful. As a result, governments may end up protecting industries that are not actually in need of protection, which can lead to a waste of resources.

Another criticism of the infant-industry theory is that it can lead to trade wars. When one country protects its industries from foreign competition, it can lead to retaliation from other countries. This can result in a spiral of protectionism that can damage the global economy.

Despite these criticisms, the infant-industry theory continues to be used by governments around the world to justify protectionist policies. However, the evidence suggests that these policies are often not effective in promoting economic growth.

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