Prébisch's rationale for protection

Summary

The major critics of Prébisch's rationale for protection have tended to overlook an important premise of his argument. The premise is that technological improvements arising in the secondary industries of the advanced countries are transferred much more slowly (i) than they occur, (ii) than the prices of the exports of the advanced countries are allowed to decline, and (iii) than technological improvements are transferred to the export industries of underdeveloped countries. All innovations are assumed to be developed in the advanced countries. Can a disparity between rates of transfer provide the essential justification for Prébisch's policy? The disparity can be said to arise from a hindrance to the transfer of advanced technology to the import‐substituting industries. The conclusion of this paper is that the policy can be justified only when (i) protection is capable of offsetting the hindrance, (ii) it is possible to ensure, during the period of protection, that the transfer of future advances can occur without hindrance, and (iii) the expansion of production possibilities resulting from the newly‐available technology allows income to increase sufficiently (over some period of time) to offset the cost of protection.

Notes

Consultant at the O.E.C.D. Development Centre, Paris. The author gratefully acknowledges the comments made by Dr H. W. Singer, Prof. M. Yudelman, Prof. Alex McCalla and Prof. Paul Zarembka on earlier drafts of the paper. The remaining inadequacies of the argument are, of course, solely the author's responsibility.