What is the Role of Protection Theory of Trade in Developing Countries?

Developing countries like India have just and special reasons to adopt the policy of protection. We may briefly enlist them as under:

1. In these countries the infant industry argument assumes far greater importance than in developed countries. Thus, selective or discriminating protection may be suggested as a remedy for certain economic ills and for the industrial growth of these countries.

2. Again, these countries being agricultural countries their economics cannot be developed at the desired speed unless due protection is given to a number of prospective enterprises. Pigou writes: “The case for protection with a view to building up productive power is strong in any agriculture country which seems to possess natural advantages for manufacturers.

In such a country, the immediate loss arising from the check to the exchange of native produce for foreign manufactures may well be outweighed by the gain from the greater rapidity with which the home manufacturing power is developed.” In short, in order to allow backward agricultural countries to develop their industrial potentialities rapidly, foreign competition should be inevitably minimised through protection.

3. The advanced countries should not resent or retaliate the tariffs of developing countries, as the nature of import restrictions of these countries differs from that of the developed countries.

Tariffs are imposed by these countries mainly to utilise the available foreign exchange earnings for the import of capital and commodities essential for economic development, rather than for having luxury articles. Due to demonstration effects, marginal propensity to import being very high in these countries, import restrictions become inevitable in the interests of the economic expansion of the country.

4. Restrictions by the developing countries are just a traditional step to increase trade; as such, in the long run, foreign trade considerably increases with an increase in income and economic expansion of these countries which help in strengthening the economy of the world as a whole.

5. From the point of view of practical politics also, protection may become inevitable. In a world torn with strife and power politics, every nation is forced to have a solid defence self-sufficiency and full employment. These cannot be achieved without evolving a tariff policy suited to the needs of the country. Most of the developing countries have secured their independence very recently. They must have a strong defence and diversification of their industries through protection.

6. Protection is a very important method, amongst many others, of planned economic development. Planning implies control and regulation of economic activities in the desired directions. Free trade policy is a laissez-faire policy, which is ruled out under planning. Since most of the poor countries of the world have hunched upon planning for economic development, protection becomes inevitable for its successful implementation.