Re-edited by Olorundare Oluwapelumi
Infant industries are newly established industries that need support to survive competition.
Infant industries are often vulnerable to foreign competition due to their lack of experience, technology, and capital. Governments often provide subsidies, tariffs, and other forms of protection to help these industries grow and become established in the global market.
Table of Contents
Reasons for Protection
- To Allow Growth and Development
Infant industries are newly established businesses that are still learning how to operate efficiently. They lack the experience, financial strength, or technology needed to compete with well-established foreign companies.
Government protection gives them time to improve their production processes and become competitive in both domestic and international markets.
- To Reduce Foreign Competition
Foreign industries, particularly those in developed countries, produce items on a much larger scale and at lower costs. This enables them to sell products more cheaply than local firms.
Without temporary protection, infant industries may struggle to survive. Measures such as import tariffs help reduce this pressure and give local businesses an opportunity to grow.
- To Create Employment
As infant industries expand, they create jobs for people across different parts of the economy. Employment increases across not only production but also other supporting activities connected with the business.
Protecting these industries therefore helps reduce unemployment while improving the standard of living.
- To Encourage Local Production
Protection gives local entrepreneurs confidence to invest in manufacturing because they have a better chance of succeeding.
Increased investment leads to higher domestic production and reduces dependence on imported products. Over time, the country is able to satisfy more of its needs through local industries.
- To Conserve Foreign Exchange
Countries spend foreign exchange when purchasing products from abroad (Vo and Vo, 2023). When infant industries produce more items locally, the need for imports declines.
This allows the country to conserve foreign exchange, which can be directed toward importing machinery or other essential production equipment.
- To Promote Self-Reliance
Protecting infant industries enables a country to build its own productive capacity. As local businesses become stronger, they rely less on foreign producers and develop confidence in domestic resources and technology. This strengthens economic independence over time.
- To Increase Government Revenue in the Future
Governments may initially spend money supporting infant industries through financial incentives. As these businesses become successful, they contribute more revenue by paying company taxes while their employees also pay income taxes. Expanding business activity further increases government earnings, making early support a worthwhile investment.
Methods of Protection
- Import Tariffs
Import tariffs are taxes imposed on products brought into a country from abroad. Their main purpose is to raise the prices of imported products so that locally produced items become more attractive to consumers. This gives infant industries a better opportunity to expand and compete successfully.
- Import Quotas
Import quotas are limits placed by the government on the quantity of certain products that may be imported during a specified period. By reducing the volume of imported products, quotas increase the market available to local industries. This enables infant industries to raise production and improve their financial position while they are still developing.
- Subsidies
Subsidies are financial assistance provided by the government to domestic industries. This support may take the form of grants, tax reductions, or low-interest loans.
By lowering production costs, subsidies enable infant industries to sell their products at more competitive prices and continue operating until they become financially stable.
- Trade Restrictions
Trade restrictions are government measures used to control the entry of foreign products into the domestic market. These measures may include import licensing or restrictions on particular products.
By limiting foreign competition, trade restrictions create a more favourable environment in which infant industries can expand and strengthen their position in the economy.
Final Thoughts
Infant industries are protected by the government to: Help them grow, reduce foreign competition, create employment, and encourage local production.
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