Import substitution industrialization

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Import substitution industrialization (ISI) is a trade and economic policy that advocates replacing foreign imports with domestic production.[1] It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. The term primarily refers to 20th-century development economics policies, but it has been advocated since the 18th century by economists such as Friedrich List[2] and Alexander Hamilton.[3]

ISI policies have been enacted by developing countries with the intention of producing development and self-sufficiency by the creation of an internal market. The state leads economic development by nationalization, subsidization of manufacturing, increased taxation, and highly protectionist trade policies.[4] In the context of Latin American development, the term "Latin American structuralism" refers to the era of import substitution industrialization in many Latin American countries from the 1950s to the 1980s.[5] The theories behind Latin American structuralism and ISI were organized in the works of economists such as Raúl Prebisch, Hans Singer, and Celso Furtado, and gained prominence with the creation of the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC or CEPAL).[6] They were influenced by a wide range of Keynesian, communitarian, and socialist economic thought,[7] as well as dependency theory.[8]

By the mid-1960s, many of the economists who had previously advocated for ISI in developing countries grew disenchanted with the policy and its outcomes.[9] Many of the countries that adopted ISI policies in the post-WWII years had abandoned ISI by the late 1980s, reducing government intervention in the economy and becoming active participants in the World Trade Organization.[10]: 164–165  In contrast to ISI policies, the Four Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan) have been characterized as government intervention to facilitate "export-oriented industrialization".[11][12][13]

ISI policies generally had distributional consequences, as the incomes of export-oriented sectors (such as agriculture) declined while the incomes of import-competing sectors (such as manufacturing) increased.[10]: 180–181  Governments that adopted ISI policies ran persistent budget deficits as state-owned enterprises never became profitable.[10]: 193–197  They also ran current accounts deficits, as the manufactured goods produced by ISI countries were not competitive in international markets, and as the agricultural sector (the sector which was competitive in international markets) was weakened; as a result, ISI countries ended up importing more. ISI policies were also plagued by rent-seeking.[10]: 193–197 

  1. ^ Nelson, Brian, ed. (2009). A Comprehensive Dictionary of Economics. p. 88.
  2. ^ Mehmet, Ozay (1999). Westernizing the Third World: The Eurocentricity of Economic Development. London: Routledge. pp. 33–57.
  3. ^ Chang, Ha-Joon (2002). Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press.[page needed]
  4. ^ Street, James H.; James, Dilmus D. (1982). "Structuralism, and Dependency in Latin America". Journal of Economic Issues. 16 (3): 673–689. doi:10.1080/00213624.1982.11504027.
  5. ^ "History of ECLAC". Economic Commission for Latin America and the Caribbean. United Nations. 8 October 2014. Retrieved 10 October 2016.
  6. ^ Renato, Aguilar (1986). "Latin American structuralism and exogenous factors". Social Science Information. 25 (1): 227–290.
  7. ^ Arndt, H.W. (1985). "The Origins of Structuralism". World Development. 13 (2): 151–159. doi:10.1016/0305-750X(85)90001-4.
  8. ^ Perreault, Thomas; Martin, Patricia (2005). "Geographies of neoliberalism in Latin America". Environment and Planning A. 37 (2): 191–201. Bibcode:2005EnPlA..37..191P. doi:10.1068/a37394.
  9. ^ Irwin, Douglas A. (2021). "The rise and fall of import substitution". World Development. 139: 105306. doi:10.1016/j.worlddev.2020.105306. ISSN 0305-750X. S2CID 229472224.
  10. ^ a b c d Oatley, Thomas (2019). International Political Economy: Sixth Edition. Routledge. ISBN 978-1-351-03464-7.
  11. ^ Frieden, Jeffry A. (2018). "Chapter 10". World Politics: Interests, Interactions, Institutions (4th ed.). W W NORTON. ISBN 978-0-393-67510-8. OCLC 1197968459.
  12. ^ Rodrik, Dani; Grossman, Gene; Norman, Victor (1995). "Getting Interventions Right: How South Korea and Taiwan Grew Rich". Economic Policy. 10 (20): 55–107. doi:10.2307/1344538. ISSN 0266-4658. JSTOR 1344538. S2CID 56207031.
  13. ^ Perkins, Dwight H.; Tang, John P. (2017). "East Asian Industrial Pioneers". In O'Rourke, Kevin Hjortshøj; Williamson, Jeffrey Gale (eds.). The Spread of Modern Industry to the Periphery since 1871. Oxford University Press. doi:10.1093/acprof:oso/9780198753643.001.0001. ISBN 978-0-19-875364-3.