Import Substitution vs. Export Promotion
Import Substitution vs. Export Promotion
Econ 240 Term Paper
Group (19) Members: Amjad Hussain (13020031) Awais Javed (13020529) Fahd Mukaddam (13020407) Haider Shah (13020528) Hassan Jamil (13020023) Muhammad Bilal Ayub (13020413)
Words (using page 2): 371*7 = 2597
IS vs. EP
2
How do the strategies of international trade affect growth? Why at times countries adopted different strategies of international trade? How does Import Substitution Industrialization weigh against Export Promotion as a trade strategy? How does the empirical evidence help us understand this?
Trade strategies are classified into two broad strategies, outward-looking development policies and inward-looking development policies. Outward-looking development policies encourage free trade and free movement of the factors of production. While inward-oriented development policies encourage greater self-reliance and restricted trade. Within these two broad approaches lies the debate between Import Substitution (protectionism) and Export Promotion (free trade). Import substitution (IS) is a well tested way to industrialization which has been followed by most of the currently developed and industrialized countries. Alexander Hamilton’s “Report on Manufactures” (1791) argued in favor of tariffs to protect American manufacturers from inexpensive imports from Britain. In the mid 19th century, Germany, Russia and Japan also practiced protectionism to develop their domestic industries. After the great depression of 1930’s, LDCs particularly Latin American and some Asian economies started practicing ISI and in 1960’s IS became a dominant strategy for development. However in the next decade, when industries protected through import substitution failed to achieve targeted productive and allocative efficiencies, countries switched to export promotion strategies. Hong Kong, South Korea, Taiwan and Singapore were among the first to adopt the export promotion strategy. Later, Chile, Thailand and Turkey also
Econ 240 Term Paper
Group (19) Members: Amjad Hussain (13020031) Awais Javed (13020529) Fahd Mukaddam (13020407) Haider Shah (13020528) Hassan Jamil (13020023) Muhammad Bilal Ayub (13020413)
Words (using page 2): 371*7 = 2597
IS vs. EP
2
How do the strategies of international trade affect growth? Why at times countries adopted different strategies of international trade? How does Import Substitution Industrialization weigh against Export Promotion as a trade strategy? How does the empirical evidence help us understand this?
Trade strategies are classified into two broad strategies, outward-looking development policies and inward-looking development policies. Outward-looking development policies encourage free trade and free movement of the factors of production. While inward-oriented development policies encourage greater self-reliance and restricted trade. Within these two broad approaches lies the debate between Import Substitution (protectionism) and Export Promotion (free trade). Import substitution (IS) is a well tested way to industrialization which has been followed by most of the currently developed and industrialized countries. Alexander Hamilton’s “Report on Manufactures” (1791) argued in favor of tariffs to protect American manufacturers from inexpensive imports from Britain. In the mid 19th century, Germany, Russia and Japan also practiced protectionism to develop their domestic industries. After the great depression of 1930’s, LDCs particularly Latin American and some Asian economies started practicing ISI and in 1960’s IS became a dominant strategy for development. However in the next decade, when industries protected through import substitution failed to achieve targeted productive and allocative efficiencies, countries switched to export promotion strategies. Hong Kong, South Korea, Taiwan and Singapore were among the first to adopt the export promotion strategy. Later, Chile, Thailand and Turkey also