CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY.
Protection in form of tariff and free trade have long been argued in economic theory and economic history. However , it is possible to say that the precise relationship between trade barriers in form of tariff or free trade in the long run economic growth remains a difficult theoretical issue that is being explored in a variety of ways.
Simithian and Ricardian conclusion reinforced by the Hercscher-ohlin theorem recommend free trade as the best commercial partners. This doctrine that is focused on improvement in the level of income is based on static framework that may limit the interpretation of the long run effect.
Relationship between economic growth and tariffs depends mostly on the characteristics of a country. Tariff can benefit a country depending on whether it is developed or developing or developed (a developed one seems to lose) either big or small country and whether it has comparative advantage in sector receiving protection. Tariffs are imposed on imported goods and are used to refer to schedule of duties applicable to a list of commodities as the commodities imported or exported. These taxes could be assessed either as a percentage of volume of the commodity concerned (ad valorem), or on the basis of some physical features as : weight, length, an specific gravity.(Johnson,1971).
Tariffs rates vary according to the type of goods imported. Import tariffs will increase the cost of importers and increase the price of imported goods in the local markets, thus lowering the quantity of goods imported. Tariffs may be imposed on export, and in an economy with floating exchange rates, export tariffs have similar effect as import tariffs .However, since export are often perceived as „‟hurting‟‟ local industries while import tariffs are perceived as helping local industries, export tariffs are seldom implemented (Meier,2000)
Protectionists believe that infant industries must be protected in order to allow them growth to a point where they can fairly compete with the larger matured industries established in foreign countries. They believe that without tariffs, infant industries will die before they reach a size of economies of scale, industrial infrastructure, and skill in manufacturing have progressed sufficiently to allow the industry to compete in the global market. They argue that government have a responsibility to protect their corporations through tariffs as well as their when putting its companies at a competitive disadvantage by enacting laws for social end up destroying domestic companies and ultimately hurting the citizens, but these laws were designed to protect.