A new industry which during its early stages is unable to compete with established producers abroad. Governments are often urged to support the development of new industries either by direct subsidies, or by protective tariff or other trade controls. It is not clear that it is necessarily a good idea for governments to support infant industries at all. Problems because of small scale and lack of experience in production, and lack of market reputation in selling, are part of the sunk costs of becoming established, and it can be argued that new industries should not be started unless long-run profits are expected to be sufficent to repay these costs and leave something over. State support for infant industries is justified if there are external benefits, for example if the industry creates new skills which can then be exploited by other industries, or if the capital market is imperfect and the government is more far-sighted than private investors. Even if a new industry should be supported, an infant industry tariff is probably not a good method. The tariff raises the price of the good to consumers, thus slowing the growth of the market. If supporting an infant industry is worth while, a subsidy would do it at lower cost.

• Eurobond
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• evasion, tax
• evolutionary theory of the firm
• ex ante
• excess capacity
• excess demand