Discussion on Economies of experience

Economies of experience arise when efficient production requires specific skills that can only be acquired through production in the industry. In many industries, efficient production requires “seasoned managers, skilled work- ers, and reliable suppliers of equipment and materials” (Kenen 1994, 280). Because these skills are lacking by definition in an infant industry, it will be… Continue reading Discussion on Economies of experience

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Criticism of the Infant-Industry Case

Criticism of the Infant-Industry Case for Protection Many economists are skeptical about the claim that government intervention is the best response to the problems highlighted by the infant-industry argument (see Kenen 1994, 281). First of all, a tariff is rarely the best policy response to the central problem the infant industry confronts. Economists argue that… Continue reading Criticism of the Infant-Industry Case

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The critique of government intervention

This critique of government intervention fails to hold in two circumstances. First, a firm may be reluctant to borrow from private markets when the problem it faces arises from economies of experience. In such instances, borrowed funds yield long-run efficiency by allowing workers employed at a particular firm to gain the skills required to operate… Continue reading The critique of government intervention

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The Political Foundation of Industrial Policy

The Political Foundation of Industrial Policy 95 competitive advantages. Many developing-country governments also em- braced the logic of the infant-industry argument throughout the early postwar periods, as we will see in greater detail in Chapter 6. The policies that governments have adopted to promote the development of infant industries are known collectively as industrial policy.… Continue reading The Political Foundation of Industrial Policy

Industrial Policy in High Technology Industries

INDUSTRIAL POLICY IN HIGH-TECHNOLOGY INDUSTRIES High-technology industries have been one area in which governments in many advanced industrialized countries have relied heavily on industrial policies. Boosting the international competitiveness of such industries has been the principal goal of such policies. High-technology industries are highly valued for the contribution they make to national income. These industries… Continue reading Industrial Policy in High Technology Industries

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Discussion on Strategic-Trade Theory

Strategic-Trade Theory Strategic-trade theory provides the theoretical justification for industrial pol- icy in high-technology industries. Strategic-trade theory expands on the basic insight of the infant-industry case for protection. Like the infant-industry case, strategic-trade theory asserts that government intervention can help domestic firms achieve economies of scale and experience in order to become efficient and competitive… Continue reading Discussion on Strategic-Trade Theory

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Payoff Matrix with European Subsidy

The Impact of Industrial Policy in High-Technology Industries (a) Payoff Matrix with no Subsidy (b) Payoff Matrix with European Subsidy dominates the industry. According to strategic-trade theory, therefore, the firm that is first to enter a particular high-technology industry will hold a competitive advantage, and the country that is home to this firm will capture… Continue reading Payoff Matrix with European Subsidy

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Strategic Rivalry in Semiconductors

STRATEGIC RIVALRY IN SEMICONDUCTORS AND COMMERCIAL AIRCRAFT The semiconductor industry and the commercial aircraft industry illustrate these kinds of strategic trade rivalries between the United States, Japan, and the EU in the contemporary global economy. In the semiconductor industry, American producers enjoyed first-mover advantages and dominated the world market until the early 1980s. The semiconductor… Continue reading Strategic Rivalry in Semiconductors

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