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The Infant Industry Argument: Tariffs, NTMs and Innovation

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  • Igor Bagayev
  • Ronald B. Davies

Abstract

One rationale for the infant industry argument is that, by protecting domestic firms from foreign competition, this increases rents and investment in innovation and other growth enhancing measures. Using data on 4,750 firms across 13 developing countries, we examine whether protection via tariffs or non-tariff measures (SPS and TBT specifically) increase innovation in either products or processes. We find no such evidence; instead we find a small negative impact of protection, particularly tariffs and TBTs, on innovation.

Suggested Citation

  • Igor Bagayev & Ronald B. Davies, 2017. "The Infant Industry Argument: Tariffs, NTMs and Innovation," Working Papers 201703, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201703
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    File URL: http://hdl.handle.net/10197/8364
    File Function: First version, 2017
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    References listed on IDEAS

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    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
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    3. Bertschek, I., 1995. "How to Stay in The Market? - Products and Process Innovation as a Response to Increasing Imports and Foreign Direct Investment," SFB 373 Discussion Papers 1995,7, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    4. Hiau Looi Kee & Alessandro Nicita & Marcelo Olarreaga, 2008. "Import Demand Elasticities and Trade Distortions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 666-682, November.
    5. Bertschek, Irene, 1995. "Product and Process Innovation as a Response to Increasing Import and Foreign Direct Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 341-357, December.
    6. Kim, Euysung, 2000. "Trade liberalization and productivity growth in Korean manufacturing industries: price protection, market power, and scale efficiency," Journal of Development Economics, Elsevier, vol. 62(1), pages 55-83, June.
    7. Mahdi Ghodsi & Julia Grübler & Robert Stehrer, 2016. "Estimating Importer-Specific Ad Valorem Equivalents of Non-Tariff Measures," wiiw Working Papers 129, The Vienna Institute for International Economic Studies, wiiw.
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    11. Anne-Célia Disdier & Lionel Fontagné & Mondher Mimouni, 2007. "The Impact of Regulations on Agricultural Trade: Evidence from SPS and TBT Agreements," Working Papers 2007-04, CEPII research center.
    12. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    13. Sascha Becker & Peter Egger, 2013. "Endogenous product versus process innovation and a firm’s propensity to export," Empirical Economics, Springer, vol. 44(1), pages 329-354, February.
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    More about this item

    Keywords

    Non-tariff measures; Technical barriers to trade; Innovation; Infant industry;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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