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of the microcomputer industry in the 1980s in Brazil. They show that although there
was rapid productivity growth in the protected industry, it never caught up with the
also rapidly growing technological frontier. As a result, welfare declined by a significant
amount (around 20% of domestic spending on microcomputers) and the policy was
abandoned in the early 1990s.
More studies like these analyzing the welfare implications of infant-industry protec-
tion would be very useful. Yet even this brief review makes it clear that protection may
lead to higher growth but result in net welfare losses. For tinplate, steel rail, wind
power, semiconductors, and aircraft, protection allowed domestic producers to grow
and eventually become world class producers. Yet for tinplate, semiconductors, micro-
computers, and possibly aircraft, protection led to net welfare losses. These case studies
suggest that designing policies that increase welfare is very difficult.

3.2 Cross-industry studies

The theoretical framework makes a number of predictions for cross-country empirical
studies. If the conditions necessary for infant-industry protection to improve welfare
are satisfied (see Section 2), then protected sectors should experience faster productivity
growth than nonprotected sectors. With time, protected sectors should increase their
importance in the economy, and eventually become exporters. Under these conditions,
one would expect to find a positive correlation between trade protection and produc-
tivity growth.
One of the first studies to look for a correlation between trade protection and pro-
ductivity growth is Krueger and Tuncer (1982). Using cross-industry data on protection
and productivity growth for Turkey in the period 1963–1976, these authors conclude
that the empirical evidence does not provide support for the infant-industry argument.
However, Harrison (1994) uses their data to show that more protected sectors did in fact
exhibit higher productivity growth. As pointed out by Harrison, “Krueger and Tuncer
(1982) applied no statistical tests to support their conclusion . . . If one runs simple corre-
lations . . . one obtains striking results: Krueger and Tuncer’s data show a statistically sig-
nificant positive relationship between increased protection and higher productivity
growth. In contrast to their stated conclusions, it is possible to show that, in Turkey, pro-
tected industries did in fact achieve greater productivity gains during the sample period.”
While Krueger and Tuncer’s results appear to show some support for infant-
industry protection, most studies find little support. Cross-industry studies usually show
that the removal of protection generates both intrafirm and intraindustry productivity
gains (possibly through market share reallocations, just as in Melitz, 2003). This
includes work by Pavcnik (2002) for Mexico, Tybout and Westbrook (1995) for
Mexico, Harrison (1994) for Cote d’Ivoire, Nishimizu and Page (1982) for Yugoslavia,
Kim (2000) for South Korea, Topalova (2004) for India, Muendler (2004) for Brazil,
Beason and Weinstein (1996) for Japan, and others.