- Mar 1, 2009
- Planet Earth
ilk, that's why ^If you did economics then you would know that protectionist policies in the form of quotas, tariffs, technical discrimination, leads to an inefficient allocation of resources. Protectionism is used to protect infant industries, and also used by countries whom wish to stay self-sufficient in certain industries (i.e. USA defence), this in turn preserves employment in these industries.
You say you do economics, Ricardo's theory is in that course, sorry if I made it seem like a Business concept.
In the long term, it can lead to inefficiencies as domestic firms and industries are provided with less competition to innovate and improve productivity. A lack of international competition, alternatively, leads to the preservation of domestic employment (like you said).
Basically, just remember that any form of protection can lead to long term dependance, limiting opportunities for expansions where a lack of competition exists. In the short term, sure they may be able to generate higher sales, but over time economies of scale and productivity will fall. (LRAC rise).