Protection and Import-Competing Product Selection in a Multi-Product Industry

An examination is conducted of the influence of the form of protection on the location of import-competing production within an industry's product spectrum, in a sector characterized by declining average costs. The issue is examined from the perspective of the problem facing a government which wishes to establish domestic production in such a sector, knowing only that no such production will take place without some form of assistance or protection against imports. Relevant policy issues are addressed. Analysis is restricted to cases where the protection or assistance offered is sufficient to establish domestic production of a single product only. It is concluded that while there is no reason to anticipate protection by means of quantitative restrictions distorting domestic production from the optimal location, the same cannot be said for protection through an ad valorem tariff.