Infant Industry Argument

By: EconomyWatch   Date: 29 June 2010

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Infant Industry Argument refers to an argument in favor of protecting the domestic industries through government backing, help, and intervention.

This argument is not a static one but is highly dynamic in nature because it doesn't say that the protectionist attitude of the government over its domestic industries would remain only for a limited period of time and would cease to exist after that period. After completion of this protectionist regime or protectionism, the government would allow its industries to be subjected to international competition to fend for itself.

Infant Industry Argument is applied on economies for the sake of correcting the distortions of short lived nature. According to this argument, the government protection to the industry holds good for a certain period of time and after that the market force is allowed to be in existence.

The main motive behind Infant Industry Argument is to create a level playing field between a backdated industry and a highly advanced industry producing similar commodities. This argument has been observed to be followed more often by the developing or the under-developed countries which possess comparatively backdated and traditional industries. In such cases, if these industries are subjected to the international markets then their products would not be able to compete with the price offered by the highly mechanized and advanced industries producing the same output and probably better quality too. Keeping all these aspects and factors into mind, two economists named Hamilton and List proposed an argument that came to be known as "Infant Industry Argument". They argued that in such uneven playing fields, the domestic, traditional, and backward industry would require government protection and backing either through tariff protection on a temporary basis or forwarding subsidy towards these industries.

Infant Industry Argument requires extra funds to be allocated by the government on a primary basis. But the justification of this initial greater cost allocation by the government remains valid only when the national income of the economy is higher than the non-protection phase.

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