- May 1, 2004
Infant-industry theory posits that small or less productive firms in developing countries require protection to catch up to foreign competitors. The theory is often cited as a validation for government-sponsored protection from trade and foreign direct investment.
But empirical evidence suggests that such protection hurts developing countries by inhibiting improvements in efficiency and competitiveness, causing unintended political side-effects, and distorting comparative advantage. The author argues that, in contrast, liberalization helps developing countries by providing their firms with access to technology, capital, and global production networks as well as the instructive pressure of competition.
The information communication technology industry (ICT) is presented as a case study.