An Empirical Test of the Infant Industry Argument: Comment
Abstract
Anne Krueger and Baran Tuncer (1982) present some interesting results on rates of effective protection and of productivity growth for various sectors of the Turkish economy. From these measures, the authors develop an empirical test for the validity of the infant industry (p. 1149). Being perhaps the first attempt to test directly the commonly cited infant industry grounds for protection, the paper by Krueger and Tuncer is especially valuable. Clearly, the approach is readily applicable in other contexts for further testing but, before so doing, it seems worth pursuing certain implications of that test little more precisely. test proposed by Krueger-Tuncer for the validity of the infant industry argument is founded on the premise that a necessary (but not sufficient) condition is that costs in (temporarily) assisted or protected should have fallen over time more rapidly than costs in nonprotected or less-protected industries (p. 1144). The test is simple and straightforward: input per unit of output must fall more rapidly in more protected if there is to be any rationale for infant industry protection. In the Turkish case, there was no such tendency over the period covered (p. 1149). But is this sufficient test of the necessary conditions? case for infant industry assistance is derived either from an externality associated with learning-by-others-doing or learningby-own-doing combined with capital market failure. For the instance of within industry learning, this is commonly modelled by inserting the integral of past output as an argument in the production function, which may be written for industry i at time t:
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