The significance of ‘learning by doing’ in providing a rationale for protection from international competition. Essay Example

‘Learning by Doing’ 4

The significance of ‘learning by doing’ in providing a rationale for protection from international competition

Introduction

Learning by doing is a concept in economics that tries to explain that productivity of a firm is realized from practice and self-perfection together with minor innovations (Clemhout and Wan 1970). A firm can use the available resources better to increase its competitive in the industry. This essay will examine the significance of learning by doing in protecting industries from international competition.

Learning by doing’

Most governments offer protection of their industries through banning of imports as well as putting tariffs. An economy that is practicing free trade can benefit significantly through technological advancements from industries and firms outside the economy (Thompson 2008). In the production process, spillover effects are inevitable in the development of knowledge across industries. This makes productivity to increase in an industry due to managerial as well as technical changes learnt from other industries and incorporated in the specific industry. As the productivity in an industry increases its competitive advantage with other domestic as well as foreign industries increases and hence the industry is more secure to produce goods and sell in the international trade (Thompson 2008).

Learning by doing especially in infant industries can be viewed as the actualization of explored productive potential of new technologies (Young 1991). Without major innovations and increase in productivity of labor, learning by doing will lead to diminishing returns and fail to protect the industry among other bigger and more productive industries in the international trade (Clemhout and Wan 1970). On the other hand the significance of learning by doing can be very significant in high technology industries which are imperfectly competitive.

Firms with more experience in using a certain technology may reach a point of stagnation (Thompson 2008). This brings about reduction in profitability of the firm compared to other firms that are more innovative and use new technologies in production. Learning and doing provides an avenue for firms and industries in a certain economy to exercise new technologies and this will increase the competitive advantage of the firms and hence they will be protected from foreign competition (Young 1991).

Learning by doing is usually determined through progress ratios. Cumulative production of a firm increases significantly when a firm continues to learn and do. This means that minor innovations in the methods of production will make the firm compete favorably with other firms in the global market and hence the protection will be enhanced (Clemhout and Wan 1970).

Tariff imposition as well as import bans as a rationale for protection of industries more so the infant industries will limit the extent at which the firms will learn and actualize the new methods of production (Clemhout and Wan 1970). This makes it necessary for economies to practice free trade where infant industries will get information on production from more developed foreign industries and this will make them increase the quality of production and hence become more competitive in the global market.

Conclusion

In conclusion learning and doing is of considerable significance in increasing the competitive advantage of firms and industries in an economy. In the first phase of production, diminishing returns can be experienced as firms undergo the learning and doing process but further innovations will make the firms compete favorably and increase their profitability.

References

Clemhout, S. and Wan, H. Y 1970, Learning-by-Doing and Infant Industry Protection.The Review of Economic Studies, Vol 37, No.1, pp. 33-56.

Thompson, P 2008, Learning by doing. Retrieved 31st Nov. 2016 from

http://economics.fiu.edu/research/working-papers/2008/08-06/08-06.pdf.

Young, A 1991, Learning by Doing and the Dynamic Effects of International Trade. Retrieved 31st Nov. 2016 from
http://www.nber.org/papers/w3577