Infant Industry Argument: Theory and Practice

Infant Industry Argument:  Theory and Practice

An Independent Study by Mamurjon Rahimov

The University of Illinois at Chicago - 2004


First of all, it was very hard to choose a topic for the independent study.  The idea of researching the argument of infant industry protection came to me suddenly after reviewing a list of topics in one economics class.  From my several years of experience working in the major infant industry of Uzbekistan – the Uzbek automotive industry, I learnt how problematic the argument on infant industries was.  There are no clear guidelines, accepted practices, limitations, and the like, despite the fact that infant industries persist all over the world, especially in Less Developed Countries (LDCs).  I started my independent study with a hope that I would learn more about this topic to apply it when I go back to my country, and that my experience would allow me better understand the theory.  The argument of infant industries remains to be a controversial topic in the world economy.  The fact that it is not well defined further exacerbates the problems caused by its application.  Infant industry argument remains to be one of the major reasons for justifying protectionism in various forms.  Although protectionist measures such as tariffs, quotas, multinational agreements are imposed due to various reasons.

 It is very important for me to learn pros and cons of this argument, now and here – since scientific literature is one of the strongly censored aspects of life in Uzbekistan.  In fact, I never saw any mentioning that Uzbek auto industry was an infant industry.  Moreover, I never read any local article mentioning problems and/or losses of the Uzbek auto industry.  Even the export revenues of the company were often calculated on the basis of shipments made out of the country, even though these “shipments” did not sell for several years.  When I got started working with the Uzbek automotive industry, I was a new graduate from a prestigious American business school, and all excited about the opportunity to apply the knowledge that I acquired overseas, as well as to learn new things.  I met all kinds of people - those who did not know where the industry was going; foreigners who tried to take advantage of our ignorance, and smart people who were never allowed in decision-making.  I read about infant industries while in business school, and at that time, everything seemed logical and simple. 

.   In my discussions of this topic with leading managers, industry ministers, and PhDs in Uzbekistan (especially those working directly in the management of this venture), I felt that I lacked theoretical and empirical knowledge to base my arguments.  All of those managers, ministers, PhDs have background in the old socialist economy, so often neither I nor them learnt something useful after long and intense discussions.  I remember the excitement of my department general manager when I brought a Harvard Business case on The Uzbek auto industry with me from the United States (actually, while studying in the USA, I went to a graduate level class with a permission from a professor to participate in its discussion).  He immediately got several photocopies of the case and passed on to the higher echelons of the management.  I doubt that they learnt anything useful from it (business cases generally do not criticize or approve certain policy), but the very fact that they were eager to get to know what Americans think about them was very interesting.  Hence, they might heed if someone who was well aware of the infant industry argument advised them. 

Our marketing department, in which I was an assistant manager, did not receive funds for basic market research, let alone for scientific, comparative-empirical work.  We could not buy books, attend seminars, and subscribe to industry magazines, purchase software and databases.  I knew we should learn from other countries’ experience, i.e. we do not need to repeat other people’s mistakes.  I felt that Uzbek automotive industry could learn from automotive industries of Korea, Malaysia and other developing countries.  I say developing countries, because developed countries are far ahead of us (LDCs), and at the time they fought with problems similar to ours, they faced a completely different set of conditions.  Developing countries, however, started quite recently from scratch and achieved considerable results, faced similar problems, came up with their solutions.

One representative of the French automotive group CITROEN asked the general director Kayumov of Uz-DAEWOO Co., the flagship of the Uzbek auto industry, the following question: “Why do you subsidize Russian consumers by selling your cars below cost? ”

An American entrepreneur, who preferred to remain anonymous, said that Uzbek top management in the automotive industry acting “penny wise, and pound foolish”.  I am sure he was referring the special interest groups that were benefiting from adverse situation of the Uzbek automotive industry under protections.  In another account, Russian dealers who sold Uzbek-made cars were stunned when some insider information had been revealed to them at a closed meeting between Uzbek auto manufacturers and Russian dealers from all over the Russian Federation.  In other words, a lot of things went wrong.  There was a whole contingent of problems contributing towards undesired outcomes from Uzbek infant industry protection, but I believe that the bottom line was misunderstanding and abuse of the infant industry argument.

Background Problem

Uzbekistan, from the very beginning of its independence claimed it had its own way of economic development.  This method was even given a name “Uzbek Method” (Karimov, 2000).   Nowhere in this method, it says, “do not learn from others”.  On the other hand, it also does not state that learning from other developing countries is the key factor in our success.

When the “UzAUTOSANOAT”, the association of automotive industry of Uzbekistan acting on behalf of the government of Uzbekistan, and Korean automotive company DAEWOO signed agreement to produce light cars in 1992, Uzbek government guaranteed protection for the new joint venture until the year 2000 (Quelch, 1997).  The year 2000 came, and nothing happened.  The industry continued to receive subsidies from the government in the form of state guarantees for loans received from foreign export-import banks, as well as continued tariff/non-tariff barriers.  Meanwhile DAEWOO Corporation went bankrupt and most of its assets went for sale.  Russian financial crises hit hard the economies of the former Soviet republics.  All these things served as an excuse for the Uzbek automotive industry’s failures.  According some estimates of industry insiders, the Uzbek automotive industry lost around U$ 150 million annually.  That is almost the amount equal to the cost of the industry’s flagship automotive plant in Ferghana valley, which is capable of producing 200,000 vehicles every year.  In fact, that kind of scale of production was never reached; and the largest volume of production was around 75,000 at one time.

 Another barrier to rapid development of automotive industry, and the whole economy of Uzbekistan is often cited to be high transportation costs. Uzbekistan is, in fact, the world's only double landlocked country, i.e. it is the only country whose all neighbors are landlocked, so to reach any seaway you have to cross two international borders.  It is very disadvantageous to be landlocked: other types of transportation are still extraordinarily high.  However, having worked in the industry for almost three years, I was a witness how the automotive industry could not work properly and was losing millions of dollars within its domestic market, let alone the neighboring markets. 

In the course of my research, I came across various opinions on the infant industry argument.  I divide them into two broad categories.  The first category approaches to the concept of protectionism from theoretical point of view, using various models and graphs (Magee, 1972).  The other category scholars approach to the concept in the light of the economic history (Chang, 2002).  Among both categories I found some that support protectionism, and some that oppose to it.  Moreover, certain economists believe that the concept of protectionism is obsolete and no more effective in the modern world economy, whereas some other economists believe that the concept is not only applicable but also especially promising during the fast paced technological and economic change of the modern era - if correctly understood and applied (Shafaeddin, 2000).  Yet there is another category of economists that do not support tariff and non-tariff barriers, but advise to use more direct measures in assisting infant industries. Governments around the world justified and continue justifying their protectionist measures, claiming that these measures, at least in the long run, benefit their countries' employment level, infant industries, balance of payments, and the like.  Sometimes two or several of these benefits are cited by governments to be grounds for active government involvement in the economy not only through protectionism but also export promotion.  From my point of view, infant industry argument comprises in itself all other arguments for protectionism.

Infant Industry Argument: Background

The World Trade Organization officially recognizes infant industries as a legitimate reason for trade restriction, although it encourages member countries and applicants to end these practices.  Numerous trade policy reviews posted on the WTO website shows this attitude of WTO (, country by country trade policy reviews).  It turns out that the argument of infant industries dates back to late 18th century.  It was first proposed in 1792 by Alexander Hamilton.  At that time, the newly established industries in America were not competitive with those of Europe.  European manufacturers were highly organized with supply and distribution systems already in place.  Hamilton's argument was that these "infant industries " should be given some time and protection in the form of subsidies, tariff and non-tariff barriers - until they become competitive (Suranovic, 1997).  Another well-known economist, Friedrich List, also argued about appropriateness of protectionism.  It is necessary to mention that List, who lived in the United States of America in the beginning of 19th century, was strongly influenced by works of Hamilton.  The United States, which is currently pushing throughout the world the concept of globalization via free trade, was the place where the infant industry protection was in, in fact, extensively used in order to be able to compete with the rest of the world, especially, its former sovereign (Shafaeddin, 2000).  List criticized works of Adam Smith in that they inefficiently highlight the importance of protection for infant industries.  However, List did acknowledge the drawbacks of tariffs, and stated that, "in time, these industries should be able to compete with foreign competition successfully.  The policy of protection should, however should continue to ensure the further expansion of the country's industries" (Shafaeddin, 2000).  List wrote that protection should be selective: “At first – for the reasons we have mentioned- it should attempt to stimulate only those industries which have an assured home market and appear to have the best chance of success.” (List, 1837)

 Adam Smith dismissed the infant industry argument stating that, "Just because a country could acquire an industry by means of such protection did not imply it should do so, or that the country would be better off for having done so"(Smith, 1776).  Nevertheless, Smith recognized that in certain cases, protectionist measures are necessary.  For instance, he supports the Act of Navigation that at that time gave the shipping industry of the Great Britain almost exclusive rights to transport inbound and outbound goods (p.429).  Smith went even further in discussing the topic of defending domestic industry (the term “infant industry” was not used by Smith in his Wealth of Nations), and asked about appropriate duration of such protectionist measures: “As there are two cases in which it will generally be advantageous to lay some burden upon foreign, for encouragement of domestic industry; so there are two others in which it may sometimes a matter of deliberation; in the one, how far it is proper to continue the free importation of certain foreign goods; and in the other, how far, or in what manner, it may be proper to restore that free importation after it has been for some time interrupted.”  The second case, which is of interest hereby, described as “…when particular manufactures, by means of high duties or prohibition upon all foreign goods (sanctions? m.r.) which can come into competition with them, have been so far extended as to employ a great multitude of hands  Humanity in this case require that the freedom of trade should be restored only by slow gradations…” (p.435)

Thus the argument has a long tradition in the economic history.  Numerous scholars since the beginning attempted to shed light into the nature of the infant industry argument.  H. G. Johnson’s description of the argument is especially clear: “What is involved is an investment in a process of acquisition of knowledge which is socially profitable but privately unprofitable because the private investor cannot appropriate the whole of the social return from his investment. ”   The crucial gain from infant industry protection is thus the appropriation of knowledge that is privately unappropriable in its entirety or in some part (Stern, 1973). 

David Landes mentioned protectionist measures exercised by various countries throughout the history.  His work has shown that such measures were often undertaken not for the sake of the infant or strategic industry itself (I believe, these two things means the same. mr), but for political ambitions of the ruling class.  He writes: “ Direct subsidies and aids are only part of the story.  The state’s hand lay everywhere, even where not directly manifest.  Even in Britain, government supported and protected overseas trade: the country as a whole paid the associated security costs of private venturers and adventures in distant seas.  Such indirect subsidy, easy to overlook, was crucial.” (Landes, 1999)

The "neo-classical" trade theory shows that temporary protection of an industry can be justified if market failures exist and the Mill-Bastable criteria are satisfied.  It is necessary to clarify that Mill criterion requires productivity increase over time so that industry becomes competitive enough for free trade, whereas the Bastable criterion requires the inter-temporal social benefit of protection to exceed the social costs.  The literature is still not at ease, so to say, in evaluating the validity and effectiveness of the infant industry protection policies.  Some of the major shortcomings of the infant industry argument cited are: capturing of policy by special interests, difficulty of identifying infant industries, lack of competitive pressure keeping "infant" firms from becoming efficient, time inconsistency of policy, failure of realization of economies of scale due to the small domestic market size.  An analysis of the global dynamics shows that protection programs practiced worldwide are unreliable: if an industry is protected until its goods become competitive in the world market, it is as likely to fail as to succeed.  Simplified model of protectionism shows us that for the industry's success to be equilibrium, protection can be removed before an industry reaches the level of international competitiveness (Kaneda, 1999). 

 Although developed countries have abolished or drastically decreased the level of the most of their protectionist measures, it is noted that they should play major role in spreading the word and action on gradual removal of such barriers to free trade and its benefits.  OECD Trade Committee recommends that developed countries, OECD countries in particular, should procure technical assistance to the Newly Independent States (NIS) in reducing existing tariff and non-tariff barriers.  It is important to note that OECD countries need to work with NIS in developing proper policies for reduction of protections, since OECD countries doubtlessly have much experience, strong institutions to cope with the myriad of questions and challenges arising from the implementation of such policies.  On the other hand, OECD countries also have numerous tariff and non-tariff barriers that inhibit NIS in trading with them.  Reducing, removing and when necessary, educating producers from NIS in complying to these regulations would in turn make it easier for NIS countries to speed up the process of abolishing their own protectionist measures.  Since most of the persisting tariff and non-tariff barriers in the OECD countries are concentrated in "sensitive" sectors such as agriculture, iron and steel, textiles and apparel, their gradual removal or reduction would make products and services from NIS services more competitive and thus would make protectionist measures unnecessary (OECD, 1994).  In case of Uzbek auto industry, such non-tariff barriers in developed countries accounted for a lot of problems with export plans.  For instance, vehicles to be sold in Germany had to undergo homologation, a special technical evaluation, and Uzbek automotive representatives were bogged down in paperwork. 

Again, although developed countries strongly push free trade, and try to abolish protectionism worldwide, they often retreat and use protectionist measures themselves at home, often when they hit recession.  For instance, more recently, talk of “free trade” in the United States gave way to the “fair” trade.  Fair trade refers to unilateral rules of what is permissible and what is not. (Salvatore, 1993).  This implies that infant industry argument can also be quite legitimately used in various cases.  The United States continues to protect quite “mature” products and “mature” industries, such as textiles, automobiles, and etc.  Although OECD countries tried floating exchange rates, they did not always work as well as good old protectionist measures.  I do not know if Uzbekistan learnt from the experience of the developed countries or not, but inconvertibility of the national currency SOUM hurt the economy real bad, while somehow boosting domestic sales of the Uzbek automotive industry.

Costs of protectionism were estimated in a number of studies.  These costs include not only direct costs such as increased prices, but also numerous indirect costs such as lost jobs, freedom of choice, reduced quality.  It is estimated that protectionism destroys (also, prevents the emergence of) more jobs than it induces.  Quality might also decline, if better quality products become scarce or unobtainable due to the protectionist measures.  Administrative costs of protectionism (which are paid for by taxpayers and consumers) are another major issue.  The costs of protectionist measures can be further divided into two parts: monetary costs and non-monetary costs.  Numerous studies have estimated monetary costs of protectionism for various cases.  A Brookings Institution study came up with an estimate for costs for US consumers caused by "voluntary" export restrictions on automobiles in mid-1980s: $14 billion.  Estimated foreign deadweight loss was around $3 billion - i.e. although foreign automobile manufacturers could increase prices due to the tariffs, they certainly would be able to sell less than before.  According to another study, in the rubber footwear industry, it cost $30,000 a year to save a job that pays only $11,460 a year, based on 2,000 hour work year (McGee, 1996).  Besides such costs, there are side effects of infant industry protection, and one of the most recurring is retaliatory action by other countries that may be adversely affected by protectionist measures. Smuggling at different levels is also one of the evils caused by protectionism.  Researchers have increasingly studied the cost of these and other costs in comparison to the benefits that might be realized by partial or complete removal of tariffs and the like.  Although approaches and models, as well assumptions of these estimations varied from study to study, one of the prevalent common methods was the estimation of the deadweight losses resulting from such protectionist measures (Stern, 1973).  However, these estimations are by far not accurate in calculating real costs in industries that have effect on numerous other areas of economy; and because of the very fact that the graphs drawn with supply and demand, tariff and resulting deadweight loss are correct if ceteris paribus (which is never the case).  I should mention here that Uzbek government chose to invest into automotive industry hoping that flourishing automotive industry would trigger economy wide renaissance (Quelch, 1997).  Then the opposite must be true also.  Who estimates that? 

It is true that protectionism directly and indirectly effects the allocation of resources in the country.  During the course of history of protectionism, optimal allocation of resources has always been a problem.  Researchers showed that objectives of protectionism in several countries could have been achieved with less sacrifices. Not only that, but much higher gains could have been realized both qualitatively and quantitatively.  Import substitution was another reason to protect and nurture infant industries.  ICOR estimate was used as criterion, i.e. invest and protect industries where ICOR was smallest.  Effective rates of protection (ERP) began to be calculated in the late 1960s.  However, the role of ERPs remains ambiguous.  Tariffs were supplemented by numerous quantitative and direct controls of foreign exchange.  Exchange rates were another widely used policy tool - widespread overvaluation of domestic currency was used to keep domestic price of capital low.  Policies designed to increase the rate of capital formation backfired in some cases, and caused underutilization of existing capital.  Agriculture, the largest sector in most LDCs was expected to decline over time in relative terms.  Countries seemingly did not realize that a sluggish agricultural sector would eventually penalize protected industries.  When new manufacturing sectors could not meet their export plans, and turned towards their domestic market, the market could not absorb the products due to the fact that deteriorated economic situation in the agriculture already had shown its effect on consumers' pocket.  Due to the limited ability of the government to plan, administer, and control sensible plans, often the government was part of the problem rather than part of the solution.  However, it is essential to note that government learning from its mistakes and those of others, not government minimizing, is the object.  Eventually some countries started to move away from import substitution towards outward orientation, which was closer to free trade than import substitution.  That may be a major reason for outward orientation still being urged strongly in developing countries by powerful institutions and influential persons.  It is true that after world war protectionism was widespread and several economic "tigers" emerged around the world. Whereas some economists argue that protectionism played important role in the post-war period, others say that "association" is not necessarily "causation" (Bruton, 1998). 

Among the experience of development of all countries in the past century, Korean experience is one of a kind.  Economists have been admiring at the quick development of Korea through industrializing its economy, which certainly had most elements of protectionism.  However, unlike many other governments, Korean government was relatively quick at learning from its own mistakes and those of other countries.  For instance, the government used direct subsidies to channel finances to the traded good sector, instead of staying with tariffs.  Korea's outward orientation is commonly singled out as the key to its success, whereas positive world economic environment was also a key element for success.  Since the ultimate goal of any economic policy is development of the country, Koreans approached this challenge wholeheartedly.  Education was emphasized, as well as discipline towards work.  When excessive government intervention in allocating resources started causing problems, the government was willing to relax some of its controls over the economy.  Relatively large domestic market was also beneficial for its economic policies.  Korea's growth pattern and its comparison with other countries implies how similar measures could produce various outcomes depending on numerous variables such as unemployment level, structure of the economy, elasticity of supply and demand in various sectors of the economy, timing of various policies, education level of the workforce, and etc (Dornbusch, 1987). 

Scholars and researchers often put import substitution and export promotion (both of which, in fact, could be used to support infant industries) on two opposite sides. The concept of learning curve, or learning-by-doing economies of scale as some state, enforces validity of the infant industry-argument.  Market imperfections are also often cited to be another reason for protectionist behavior of some countries.  (Panagariya, 1999).    In some country cases, government policy towards protecting infant industry through import-substitution shifted towards export promotion (Dornbusch, 1987).

Some researcher strongly believe that imposition of free trade towards LDCs by developed countries such as the USA, western European countries, and UK has produced discouraging results.  LDCs developed much faster before they abandoned protectionist policies and followed the IMF, World Bank, and Western think-tanks that vehemently push free trade.  One of the researchers who reached the above conclusion is Ha-Joon Chang, a professor of economics at Cambridge University, and the author of numerous books on this topic such as “Kicking Away the Ladder: Development Strategy in Historical Perspective”, London, 2002.  This metaphorical title comes from Friedrich List, which wrote in 1841: “It is very common device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him…”  He blames that developed countries such as the USA, Germany, and UK have passed the period of protectionism of their own, and do not want LDCs to catch-up using the same methods.  In other words, Chang believes that developed countries are engaging in “Do as we say, not as we did” behavior.  “When they were in catching-up positions, the NDCs (now-developed countries) protected infant industries, poached skilled workers, and smuggled contraband machines from more developed countries, engaged in industrial espionage, and willfully violated patents and trademarks,” says Chang.  “However, once they joined the league of the most developed nations, they began to advocate free trade and prevent the outflow of skilled workers and technologies; they also became strong protectors of patents and trademarks.  In this way, the poachers appear to have turned gamekeepers with disturbing regularity.” (Lind, 2002)

Concluding remarks and suggestions

I started out with the hope to find out more about the infant auto industry of Uzbekistan, but the lack of reliable data was a huge barrier.  The official web sites of both Uz-DAEWOO and Uzbek Ministry of Macroeconomics and Statistics have been dysfunctional.  Not that Uzbek officials underestimate the importance of disseminating economic information to attract direct foreign investment, but they are reluctant to divulge many statistics. Moreover, even the web cites of an Uzbek think-tank, Center for Economic Research, set up by UNDP was not any useful in backing up the research with facts.  Knowing that DAEWOO was the largest foreign investor into Uzbek economy, one might ask, why is it impossible to find any articles in the archives of a UNDP-supported think-tank?  The fact remains that the lack of reliable information has been one of the main phenomenon in LDCS, and Uzbekistan is not an exception.  Therefore, I had to include much from what I learnt personally during almost two and a half years of work with the Uzbek automotive industry and my personal conversations (should I call “interviews” of top industry insiders?).

The fact that I have worked in a major infant industry of Uzbekistan for several years, close to the decision making headquarters, has helped me to better understand the literature on this topic, whereas my access to various economic literature, web sites gave me a lot of theoretical basis for analysis.  While working in the automotive industry, I attended several corporate meetings and seminars, which were closed for media and outsiders.  Also, I had personal encounters with the top decision-making people of the industry.  Hence, I also have my own way of thinking about this topic, based on my personal experience. 

Nowhere in the textbooks, nor in professional literature, one can see some optimal period that should be given for infant industry to grow up.  That in turn implies that those who run the country can extend infant industry protection indefinitely, trying to make some profit out of complex deals.  This is especially true about LDCs, where government is free to do practically anything regardless of the public discontent.  LDCs lack strong and free media, economic and political think-tanks to shed light on problems, chaos, and anarchy in the economy.  Besides, many of the LDCs are from former socialistic block, which did not have things like competition at all.  Thus, complete protection of one or several industries seems "normal" to almost everyone.

International agencies and organizations such WTO, IMF, World Bank, and many others can criticize as much as they want, and foreign economists in leading educational and research institutions can write up many critical reports and business cases - but until the people in those LDCs, especially people in decision-making positions, understand that things are going wrong and the infant industry is not growing up "healthy" - certain economic and political forces in LDCs are going to continue to abuse this concept and continue to make it work for their narrow benefits.  In other words, I believe in the “inside out” kind of change.

Of course, as it had happened numerous times with numerous countries, Uzbekistan in particular, international agencies may exert pressure on governments to change, to accelerate transition to free market system.  However, we have seen how ignorant governments react to this: simply make up statistics that leave western analysts and international aid and trade agencies happy with the situation.  In case of Uzbekistan, this caused several international agencies, such as IMF and WTO, to stop receiving statistical information from the Ministry of Macroeconomic Statistics of Uzbekistan.

I was surprised not to find   any notion of implicit government guarantees, formally and/or informally given to support infant-industries.  In other words, Uzbek government’s clout always has been by itself a guarantee while its pampered infant industry was borrowing from foreign financial institutions.   In the case of Uzbekistan, surprisingly, I saw the combination of almost all protectionist measures (that I found in the literature on this topic) being used almost simultaneously.  It seems to me that the Uzbek Government was trying, by all means possible, make sure the new automotive industry did not fail.  Sadly, the venture brought nothing but losses so far.  As an insider, I estimated these losses were several hundred million US dollars per year.  I cannot even guess how these losses caused “domino effect” in all other fields of the Uzbek economy.  The information about the continuing losses of the Uzbek auto industry is so classified that even there was no mention of it neither in official nor unofficial media.  Meanwhile, huge funds are being channeled to this venture in hopes to preserve it, plus protectionist measures are also showing their negative effect.  Informed people that I spoke with believe that these losses are continuing to be incurred only due to the political reputation of the current President of Uzbekistan.

I personally support the infant industry argument as a temporary means towards economic development.  I think that it is time to draw, at least, general guidelines for protection of infant industries - since the world had had over 200 years of experience on this matter.  In my view this should be carried out on the level of WTO.  Since the practice of protecting infant industries is still prevalent in the modern world economy and is costing the world economy astronomic figures, this matter deserves formation of a separate committee or group of practitioners and scholars under the auspices of WTO. Protectionist policies should allow for quick and decisive changes, when circumstances require.  In other words, instead of developing one rigid 10-year plan for development of particular industry's potential, a series of smaller steps with various specific conditions could be devised.  For instance, a government could tell the infant industry to achieve ten percent decrease in manufacturing and administrative costs within the next three years, or achieve certain ROI (return on investment) in order to qualify for further tax holidays and/or subsidies.  This would, in my view, compensate for the lack of competition for the infant industries.  Governments should play the most active role in nurturing the strategic and long-term goals, which of course will cost some sacrifices.  I have met a number of businessmen from now-developed countries that did not regret that at one period of their lives they had to give up their economic freedom and well-being so that to provide a prosperous future for the next generations.  However, it must be emphasized that such losses have to be forecasted before they occur - in order to undertake necessary measures to minimize them.  After all, no pain, no gain…

I intend to go back after graduation, and I will see the people that I worked with.  Uzbeks generally fear authority, and do not talk what they know straight to the face of someone one level higher.  Here, in the USA, despite the far distance from home, I have made good friends among a number of Uzbek and other economists.  We organized discussion groups and brought up many issues, including the Automotive industry of Uzbekistan.  We have our own views, much different than that of current policy makers.  Most of the scholars from Uzbekistan who study abroad came through the President’s Program “UMID” (translated as hope), and our nation has placed their hope on us to deal with social, political, and economical problems of our newly independent motherland.  I would be very happy, and I am very hopeful, that with works like these we moved one step closer towards more developed Uzbekistan.

Cited Literature

1.   Dorbusch, Ruduger.  “Korean Growth Policy.” Brookings Papers on Economic Activity, vol. 1987, No. 2, pp. 389-454.

2.   Bruton, Henry.  “A reconsideration of Import Substitution.”  J. of Econ. Literature, vol. 36, No. 2 (June, 1998), pp. 903-936.

3.   Kaneda, Mitsuhiro “Mitch”.  “Warranted Scepticism: A Dynamic Model of Infant Industry Protection.”  Georgetown University, August, 1999.

4.   McGee, Robert.  “The Philosophy of Trade Protectionism, Its Costs and Its Implications.”  The Dumont Institute for Public Policy Research, No. 10, July, 1996.

5.   OECD, Centre for Co-operation with the Economies in Transition.  “Barriers to trade with the economies in transition.”  Paris, 1994.

6.   Panagariya, Arvind.  “Evaluating the case for export subsidies.”  World Bank EXCOMPETE, March, 1999.

7.   Stern, Robert.  “Tariffs and other measures of trade control: a survey of recent developments.”  J. of Economic Literature, vol. 11, No. 3 (Sep., 1973), pp. 857-888.

8.   Lind, Michael.  “Do as we say, not as we did.”  Japan Policy Research Institute, JPRI Critique, Vol. IX, No. 6 (Dec. 2002).

9.   Magee, Stephen.  “The welfare effects of restrictions on U.S. trade.”  Brookings papers on Economic Activity, Vol. 1972, No. 3 (1972), pp.645-707.

10. Suranovic, Steven. (G. Washington University). 1997.

11. Smith, Adam.  “An inquiry into the nature and causes of the wealth of nations.”  Oxford: Clarendon Press, 1976.

12. List, Friedrich. “The Natural System of Political Economy. 1837”  London, Frank Cass, 1983.

13. Salvatore, Dominick. “Protectinism and World Welfare.” Cambridge University Press, 1993.

14. World Trade Organization.  Country reports. 2003.

15. Landes, David. “The Wealth and Poverty of Nations: why some are so rich and some so poor.” New York, Norton, 1999.

16. Quelch, John A. et al. “DAEWOO’s Globalization: Uz-DAEWOO Auto Project.”  Harvard Business Case, 1997.

17. Official corporate web site. “About the Company.” 2000.

18. Karimov, Islam. “Uzbekistan at the Threshold of the Twenty-first Century”. Tashkent, 2000.

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