Table of Contents
The Benefits and Limitations of Import Substitution, The concept of import substitution dates back centuries in economic theory. However, its popularity began to rise in the 1950s in Latin America and around the world with the work of economist Raul Prebisch. Developing countries adopted similar strategies after World War II, when industrialization and capital investment were the key to economic development. However, the Washington Consensus – which advocated freer trade – pushed this strategy out of favor. The following are some key points about the idea of import substitution.
Economic theory
The concept of import substitution has been around for a long time, but its benefits have been largely ignored. In its simplest form, it involves replacing imported goods and services with local products. For example, consumers can purchase goods and services produced in their own country rather than having to pay high prices elsewhere. It also allows local communities to put their hard-earned money to work within their boundaries. The benefits of this strategy are many, but its limits are many.
Development strategy
The primary export-led growth strategy of LDCs has been neglected by many LDCs. In their place, they have opted for an import substitution development strategy. Such strategies promote rapid industrialisation and development, and promote import substitution through high tariffs and import quotas. However, many LDCs have not followed these strategies, despite their apparent advantages. In some cases, it may be necessary to adopt an import substitution strategy for the sake of growth.
Development strategy in Latin America
The experiences of different Latin American countries in industrialization, whether through import substitution or state-led industrialization, have been studied under the integrating model. Although similarities and differences exist, some notable differences remain across countries that have adopted the ISI model, including timing, political institutions, and preferred mechanisms. For example, early substitution has occurred in Brazil and Argentina, while Peru has been slow to follow suit. Moreover, the political economy of countries in Latin America varies from one-party rule to authoritarian praetorian politics.
Critics
The trade strategy of import substitution dates back centuries. Its first popularity came in the 1950s in Latin America and throughout the world under the leadership of Raul Prebisch. The strategy was adopted by many developing countries after World War II, when economic growth was equated with industrialization and capital investment. But with the advent of the Washington Consensus and the desire for freer trade, the strategy fell out of favor. Critics of import substitution argue that such policies lead to inefficiency.
Successes
The recent success of the policy of import substitution is due in part to its successful implementation in Kazakhstan. The country adopted a program of import substitution in the light and food industries, and the state program on accelerated industrial development that was implemented between 2010 and 2014. In the medium term, the country was able to achieve high growth in the gross domestic product (GDP), with a gradual decrease in the amount of raw materials exported. As a result, its exports increased significantly.
Reconsideration
Reconsideration of import substitution is a concept that aims to limit the amount of imported goods in a country. Instead, these products can be produced locally. This method benefits local economies in a number of ways. For example, it creates more jobs and more income for local producers. It also creates jobs for workers from the surrounding region. Moreover, it’s a good idea for developing countries, which don’t have enough foreign exchange reserves to invest in a large industrial complex.
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