Import Substitution Industrialization

Definition

Import substitution industrialization (ISI) is an economic policy that aims to reduce a country's dependence on imported goods by fostering local industries to produce those goods domestically. This approach is often adopted by developing countries as a strategy to boost economic growth, create jobs, and promote self-sufficiency while addressing inequalities in North-South relations through economic development.

5 Must Know Facts For Your Next Test

1. ISI was widely implemented in Latin America during the mid-20th century as a response to the challenges posed by colonial legacies and global market dependencies.
2. Countries that adopted ISI often saw initial industrial growth and job creation, but many faced challenges such as inefficiency and lack of competitiveness in global markets over time.
3. The policy typically involved government intervention through subsidies, tariffs, and state-owned enterprises to stimulate local production.
4. Critics argue that ISI can lead to over-protection of inefficient industries, causing long-term economic stagnation and limited innovation.
5. The decline of ISI as a popular strategy began in the late 1970s and 1980s when many countries shifted towards more market-oriented reforms and export-led growth strategies.

Review Questions

• How did import substitution industrialization influence economic policies in developing countries during the mid-20th century?
  • Import substitution industrialization influenced developing countries' economic policies by encouraging them to focus on building domestic industries instead of relying on imports. This strategy aimed to protect nascent industries from foreign competition through government intervention, which included tariffs and subsidies. Many countries believed that by nurturing local industries, they could achieve self-sufficiency and stimulate job creation, ultimately leading to sustainable economic growth.
• Discuss the advantages and disadvantages of implementing import substitution industrialization as an economic strategy.
  • The advantages of import substitution industrialization include the potential for rapid industrial growth, job creation, and reduced dependency on foreign imports. However, disadvantages arise when industries become overly protected, leading to inefficiency and limited global competitiveness. Furthermore, ISI can result in a lack of innovation and growth stagnation as protected industries may not adapt to changing market demands or global competition.
• Evaluate the long-term impact of import substitution industrialization on North-South relations and global economic dynamics.
  • The long-term impact of import substitution industrialization on North-South relations has been significant. Initially, ISI aimed to enhance the economic independence of developing countries and reduce their reliance on developed nations. However, many countries experienced limited success, leading to a shift towards globalization and export-led growth models. This transition has changed global economic dynamics, as developing countries seek integration into the world economy while grappling with issues of inequality and dependency that persist from earlier ISI policies.

Related terms

Protectionism:

An economic policy that restricts imports from other countries through tariffs, quotas, and other trade barriers to protect domestic industries.

Export-led Growth: An economic strategy that focuses on increasing exports to drive economic growth, often contrasting with import substitution industrialization.

Economic Development: The process by which a nation improves the economic, political, and social well-being of its people, often involving changes in the structure of the economy.