ABSTRACT
In this essay I propose to look again at the policy implications of dynamic internal economies without, however, burdening myself with the more special assumptions which pervade the infant-industry literature. In the context of a two-period model, I develop two general tests which may be applied to any proposal for intervention. The first test if failed disqualifies the proposal; the second test if passed justifies intervention. It is shown that the first test cannot be met if the policy-making country applies a system of optimal tariffs and if its producers have complete knowledge and are not myopic. The relevance of the analysis to economies with privately owned wasting resources is noted.
