13-11 It appeared that the infant industry argument was not as valid as some had initially believed. Trade restrictions can allow an inefficient industry to survive, but it cannot make the new industry more competitive or efficient. Import substitution industrialization involved costs and promoted wasteful use of resources: It involved complex, time-consuming regulations. It set high tariff rates for consumers, including firms that needed to buy imported inputs for their products. It promoted inefficiently small industries. Problems with Import-Substituting Industrialization
13-12 Table 13-2: Effective Protection of Manufacturing in Some Developing Countries (percent) In some developing countries, new industries were protected by tariff rates of 200 percent or more. These high rates of effective protection allowed industries to exist even when their cost of production was 3 or 4 times the price of the imports they replaced.