B11

Question 1

Describe the infant industry argument

Answer 1

The prevailing development model up to the 1970’s that stated that a country should protect its infant industries untill they could compete internationally

Question 2

What are the arguments against the infant industry argument

Answer 2

That it is not always good to move into an industry today that might have potential in the future, the protection might not be nececary and private investors might take care of sponsoring the infant industry if there is great potential

Question 3

Name two market failures that might nececitate infant industry protection

Answer 3

imperfect capital markets (in some countries they are not very developed) and the problem of appropriation (that entering a new industry will create public goods such as knowledge for which the company might not be compensated)

Question 4

What is import substituting industrialization

Answer 4

The development strategy of encuraging domestic manufacturing by limiting imports of manufactured goods

Question 5

Is it possible to encurage import substitution and exports at the same time

Answer 5

Generally no as substitution imports take resources away from export sectors

Question 6

Have import substitution policies worked historically

Answer 6

No, they have not, even though the developing countries devoted a similar share of their economies to manufacturing their welfare has not improved

Question 7

what is the goal of trade policy in developing countries

Answer 7

They tend to promote industrialization and coping with wealth inequality

Question 8

What trade strategy seam to have worked for developing countries

Answer 8

export led growth like that of China, South Korea and so on although it is not clear if trade liberalization alone was the trigger as south american countries have grown slower after such indevors