Files
Abstract
The infant industry argument for protection of import competing industries has a long and almost entirely
theoretical history in the literature. In this paper the empirical evidence of infant industry dynamics in the Brazilian
ethanol industry is investigated. In Brazil ethanol has developed into a primary automotive fuel over the past 18
years. This import substitute is attractive because it allows decreased dependence on international oil supplies while
at the same time it addresses environmental concerns because it is a clean-burning renewable fuel. While ethanol
was initially a high-cost alternative to imported 0il, observed cost reductions have led to an increased belief that this
industry may in fact warrant the subsidization it has received because of infant industry reasons. The results of this
study suggest that there is no empirical evidence of economies of scale and very little technical change. There
appears to be no empirical validity to the infant industry argument for subsidization of the Brazilian ethanol
industry.