Impact of Protectionism on Economic Growth: A Case of Kuwait

International Trade has long debated as a source of economic growth for countries. Economists such as Adam Smith, David Ricardo, Eli Hecksher and Bertil Ohlin, and others have all put forward ideas and models for how countries benefit from international trade, at times building on their predecessorswork.AdamSmith started with his theory of absolute advantage of production, and countries specializing in the products they could produce at a lower cost. These goods would then be exported in exchange for similarly produced goods. David Ricardo Expanded this model looking instead at the theory of comparative advantage. Hecksher and Ohlin continued this trend looking at factor endowments for beneficial trade. Trade can increase the welfare in all countries, but import tariffs then reduce the welfare gained from trade. There are many reasons for protectionism including undesirable specialization, instability in the export market, terms of trade deterioration, aiding infant industries and others. These theories are applied to the situation in Kuwait and it's policies of protectionism. Kuwait currently allows only Kuwaiti individuals and Kuwaiti majority shareholder firms to import into the country, and there is a 5% ad valorem tax on most nonfood items. In early 2006 there was a modernization of the Kuwaiti customs system resulting in an increased efficiency, which then caused an increase in imports. This is verified in the data obtained from the World Bank. The result being an ease in trade leads toincreased tradeandoverallwelfare.