Revisiting the infant industry argument

This paper identifies a flaw in the infant industry argument that previous literature has ignored. A simple model first replicates the infant industry logic but subsequently shows that, in the presence of a ‘traditional technology’ with poor growth potential, the infant-industry logic is likely to fail. Under protectionism domestic producers substitute advanced technologies with the low-growth alternative, thereby inhibiting learning and economic growth. Protectionism's adverse effect on development is magnified by complementarities among advanced input goods and, under adequate conditions, in a three-country setting.