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Entrepreneurial Ability, Market Selection and Setting Up an Infant Industry-Theory and Evidence from the Japanese Cotton Textile Industry

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  • Ohyama, Atsushi
  • Braguinsky, Serguey
  • Murphy, Kevin M.

Abstract

In this paper we develop a new insight into the infant industry argument for protection, in the setting where entrepreneurs are differentiated by talent. The speed of technological progress depends on the quality of ideas and the incentives to innovate, not on the scale of the industry, and unprotected open economy competitive regime furnishes the best environment for innovation- led industrial growth even in the presence of industry-wide increasing returns to scale. Competitive market selection of ablest entrepreneurs forms a crucial condition for successful industrialization. The model is tested against the evidence of industrial revolution in Japan that presents a unique historic experiment in which an internationally competitive textile industry was eventually set up without government protection after earlier experiments with subsidized firms had failed.

Suggested Citation

  • Ohyama, Atsushi & Braguinsky, Serguey & Murphy, Kevin M., 2001. "Entrepreneurial Ability, Market Selection and Setting Up an Infant Industry-Theory and Evidence from the Japanese Cotton Textile Industry," Working Papers 163, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    • Handle: RePEc:zbw:cbscwp:163
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    1. Miwa, Yoshiro & Ramseyer, J Mark, 2000. "Corporate Governance in Transitional Economies: Lessons from the Prewar Japanese Cotton Textile Industry," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 171-203, January.
    2. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June.
    3. Krueger, Anne O, 1993. "Virtuous and Vicious Circles in Economic Development," American Economic Review, American Economic Association, vol. 83(2), pages 351-355, May.
    4. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 503-530.
    5. Yoshiro Miwa & J. Mark Ramseyer, 1999. "The Value of Prominent Directors," William Davidson Institute Working Papers Series 279, William Davidson Institute at the University of Michigan.
    6. Yoshiro Miwa & J. Mark Ramseyer, 1999. "The Value of Prominent Directors: Lessons in Corporate Governance from Transitional Japan," CIRJE F-Series CIRJE-F-63, CIRJE, Faculty of Economics, University of Tokyo.
    7. Saxonhouse, Gary, 1974. "A Tale of Japanese Technological Diffusion in the Meiji Period," The Journal of Economic History, Cambridge University Press, vol. 34(1), pages 149-165, March.
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