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10.1: Infant Industry and ISI

Infant industry protection and import substituting industrialization are less successful if the domestic market is not large enough to provide sufficient demand for the manufactured goods. Based on this claim, we would predict to see more protection more in large countries when countries pursue infant industry protection and import substituting industrialization.

Application 9.1 compared the size of a country's economy and its tariff rates. Repeat this comparison by graphing a nation's tariff rates versus its GDP, but limit the sample to low and middle income countries. Is there any clear relationship? Try using population instead of GDP.

Note: The fact that optimal tariff considerations and infant industry protection could both explain the same phenomenon means that we can not really say which is causing patterns of protection.

Data: Go to the World Bank page at http://www.worldbank.org/data/. For GDP and population, select "Data," then "Quick Reference." For tariff rates, use this tariff.xls spreadsheet that was generously provided by the World Bank.

Data provided courtesy of the World Bank.





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