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Protectionism for infant industries always imposes costs on domestic users of the product, and typically has provided little benefit in the form of stronger, competitive industries. However, several countries in East Asia offer an exception. Japan, Korea, Thailand, and other countries in this region have sometimes provided a package of indirect and direct subsidies targeted at certain industries, including protection from foreign competition and government loans at interest rates below the market equilibrium. In Japan and Korea, for example, subsidies helped get their domestic steel and auto industries up and running.

Why did the infant industry policy of protectionism and other subsidies work fairly well in East Asia? A study by the World Bank in the early 1990s offered three guidelines to countries thinking about infant industry protection:

  1. Do not hand out protectionism and other subsidies to all industries, but focus on a few industries where your country has a realistic chance to be a world-class producer.
  2. Be very hesitant about using protectionism in areas like computers, where many other industries rely on having the best products available, because it is not useful to help one industry by imposing high costs on many other industries.
  3. Have clear guidelines for when the infant industry policy will end.

In Korea in the 1970s and 1980s, a common practice was to link protectionism and subsidies to export sales in global markets. If export sales rose, then the infant industry had succeeded and the protectionism could be phased out. If export sales did not rise, then the infant industry policy had failed and the protectionism could be phased out. Either way, the protectionism would be temporary.

Following these rules is easier said than done. Politics often intrudes, both in choosing which industries will receive the benefits of being treated as “infants” and when to phase out import restrictions and other subsidies. Also, if the government of a country wishes to impose costs on its citizens so that it can provide subsidies to a few key industries, it has many tools for doing so: direct government payments, loans, targeted tax reductions, government support of research and development of new technologies, and so on. In other words, protectionism is not the only or even the best way to support key industries.

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The anti-dumping argument

Dumping refers to selling goods below their cost of production. Anti-dumping laws block imports that are sold below the cost of production by imposing tariffs that increase the price of these imports to reflect their cost of production. Since dumping is not allowed under the rules of the World Trade Organization (WTO)    , nations that believe they are on the receiving end of dumped goods can file a complaint with the WTO. Anti-dumping complaints have risen in recent years, from about 100 cases per year in the late 1980s to about 200 new cases each year by the late 2000s. Note that dumping cases are countercyclical. During recessions, case filings increase. During economic booms, case filings go down. Individual countries have also frequently started their own anti-dumping investigations. The U.S. government has dozens of anti-dumping orders in place from past investigations. In 2009, for example, some U.S. imports that were under anti-dumping orders included pasta from Turkey, steel pipe fittings from Thailand, pressure-sensitive plastic tape from Italy, preserved mushrooms and lined paper products from India, and cut-to-length carbon steel and non-frozen apple juice concentrate from China.

Questions & Answers

what is law of demand
Hugo Reply
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Hugo
What is the law of demand
Hugo
just considering the relationship between price and quantity, holding other factors constant.
Donation
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explain the determinants of derive demand?
what financial market is all about
Emmanuel Reply
What happens to the ppf curve due to following events a) A relaxation of policies allowing more foreign direct investment into the country b) Increasing the minimum wage level c) A decrease in expenditure on research and development d) An increase in the retirement age
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Discuss various from the imperfect competition
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tell me the defference between budget constraint and limited resources
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what is budget constraint?
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Budget constraint refers to all the combinations of goods and services which an individual can buy on a given price and with his given income.
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An economist can serve as a consultant in a bank, whether commercial or governmental. He can also works as a Professor in the University, analyst and forecaster and other sectors of the society
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You'll need knowledge in calculus
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What is taste and preferences
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what is demand?
BtsARMY Reply
a dire need of something
Akhir
by consumers
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such as the quality of life
Akhir
Demand simply means the amount of goods and services a consumer is willing to purchase at a given price level at a given period of time in the markets.
Heron
quantity of goods or services a buyer willing to buy at certain period of time give other things are equal. Or it is simply the willing + the ability.
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BtsARMY
Income effect simply defines how the change in price can change in the quantity that consumer will demand of that good . It means if price increases the demand to buy that good decreases because price of a good directly effects on real income.
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change in price and the effect on quantity demanded.
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how do you derive a marginal value product and average value product equations from cobb Douglas production function?
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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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