Question

Is protectionism within an economy good or bad for a nation state within the global economy?

Answer 1

Protection is good based on these following arguments:

1. Infant Industries:

Many developing countries, like India, Pakistan, Sri Lanka and Bangladesh have the conditions necessary to compete success­fully in the international market, but they lack experience and expertise which take time to acquire.

The infant industry argument suggests that new industries should be given temporary protection in order to enable them to build up this experience. This argument applies where the industry is small and young, and where costs are high but fall as the industry grows.

2. Diversification of Industries Argument:

A policy of production is also advocated to diversify a developing country’s industrial structure. A country cannot rely on one or a few industries only; it is necessary that a large number of industries of diverse varieties develop in the long run. This strategy will reduce the risk of losing foreign markets; for, in case of failure to export one commodity, other goods may be exported.

3. Employment Protection:

The dynamics of the world economy mean that at any time some industries will be in decline. If those industries were responsible for a significant amount of employment in a country in the past, their decline would cause problems of regional unemployment. There s justification for a country to protect a contracting industry to slow down its rate of decline so that time is given for people to find jobs elsewhere in the economy.

4. Employment Creation:

Protection to home industries may create em­ployment opportunities in the country, and thus reduce the magnitude of unemployment. But this argument is also fallacious; for protection may create employment in some home industries, but by reducing imports it reduces employment opportunities in the foreign countries.