Infant Industry Argument: Theoretical Framework and Current Opportunity of Adoption

This paper verifies the possibility of using Infant industry protection strategy to improve manufacturing competitiveness in developing countries. The main theoretical bases of this strategy are: its significant role in creating dynamic comparative advantages in manufacturing sector. This protection also gives the industry time to learn by doing and achieve its positive externalities. In addition, infant industry protection can be a virtual solution to market failure which may impedes the establishment of such industry. This study supports infant industry argument validity by showing successful experiences of some countries at various times in history. It is found that most countries used such policy to reach their industrialization. Some studies tried to refute the infant industry argument but they based their criticism mainly on the failure of some developing countries to correctly apply this policy, not on their theoretical justification. Despite current WTO restriction to use infant industry, the paper argues that the chance of adopting this strategy still exists. This can be mainly achieved by some policy space of WTO rules to adopt this policy, especially if these countries focus on technology intensive industries. In addition, developing countries can exploit the increasing number of Regional Trade Agreements (RTAs) to support their infant industries. RTAs extend the market size that may help infant industries to develop their competitiveness through achieving economies of scale, learning by doing and supporting backward and forward linkages.