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The Main Attractions of an Import Substitution Strategy - Assignment Example

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The paper "The Main Attractions of an Import Substitution Strategy" discusses that on a global scale, the issue of productivity and efficiency may still be properly managed by the market. It means that in the real sense, prices of products will dictate the product cost.  …
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The Main Attractions of an Import Substitution Strategy
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Download file to see previous pages The strategy may be adopted as a matter of economic policy and to attain industrialisation. In such context, Wikipedia (2006) said: “Import substitution industrialization (also called ISI) is a trade and economic policy based on the premise that a developing country should attempt to substitute products which it imports, mostly finished goods, with locally produced substitutes. The theory is similar to that of mercantilism in that it promotes high exports and minimal imports to increase national wealth.” It further said the policy has three major tenets: (1) an active industrial policy to subsidize and orchestrate production of strategic substitutes, (2) protective barriers to trade (namely, tariffs), and (3) a monetary policy that keeps the domestic currency overvalued. Hence import substitution policies are not favoured by advocates of absolutely free trade.
The failure of several developing countries of not having succeeded to deepen the process of import substitution into its second and third phase could be attributed to the defect of the strategy as determined by results. The experiences of several developing countries are thus cited below to explain the failure. We will start with the Latin American countries, followed by East Asia and then we will discuss the cases of Malaysia and the Philippines.
Wikipedia (2006) said: “Import substitution policies were adopted by most nations in Latin America in the 1930s and 1940s because of the Great Depression of the 1930s. In the 1950s the Argentine economist and UNECLA head Raúl Prebisch was a visible proponent of the idea. Prebisch believed that developing countries needed to create forward linkages domestically, and could only succeed by creating the industries that used the primary products already being produced by these countries. The tariffs were designed to allow domestic infant industries to prosper.” ...Download file to see next pagesRead More
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