Discuss the relative merits of import substitution versus export promotion.
Many countries have adopted different development strategies in order to promote growth. One of these, used by the now developed economies following the Industrial Revolution, is import substitution industrialisation (ISI). This is the notion of reducing foreign dependency of a country’s economy through focusing on domestic production of goods and services. An opposing strategy is export promotion. This includes measures taken by the government to increase the quantity and variety of goods and services that are exported. There is often debate among policy-makers about the effectiveness of each as a growth and development strategy with interesting statistical evidence supporting each side. In order to achieve a conclusion, the relative merits and weaknesses of each will be discussed - albeit an informed decision depends on a number of explanatory variables.
First of all, the import substitution strategy often coincides with state-led economic development through nationalisation and subsidisation of key domestic industries. Adopting such a regime usually means having a protectionist trade policy. Many Latin American countries implemented an ISI policy after WWII until around the 1980s, partly as a response to decades of disappointing growth in the early 20th century. Some Asian countries, especially India and Sri Lanka, also pursued such policies from the 1950s onwards. The rationale for doing so is extensive. One reason is known as the infant industry argument. This is where domestic industries are protected through government backing, help, and intervention. This mainly applies to liquidity-constrained companies that are unable to incur short-term losses. The main benefit is to create a level playing field between a backdated industry and a highly advanced industry producing similar goods and services. Without this protection, it would be difficult to compete with foreign firms on the efficiency and quality of goods and services. Eventually, these infant firms
First of all, the import substitution strategy often coincides with state-led economic development through nationalisation and subsidisation of key domestic industries. Adopting such a regime usually means having a protectionist trade policy. Many Latin American countries implemented an ISI policy after WWII until around the 1980s, partly as a response to decades of disappointing growth in the early 20th century. Some Asian countries, especially India and Sri Lanka, also pursued such policies from the 1950s onwards. The rationale for doing so is extensive. One reason is known as the infant industry argument. This is where domestic industries are protected through government backing, help, and intervention. This mainly applies to liquidity-constrained companies that are unable to incur short-term losses. The main benefit is to create a level playing field between a backdated industry and a highly advanced industry producing similar goods and services. Without this protection, it would be difficult to compete with foreign firms on the efficiency and quality of goods and services. Eventually, these infant firms