Question

Define what import substitution industrialization (ISI) is. Explain, in detail, how ISI may help economic development and give examples of ISI policies in less-developed countries. Finally, discuss the main problems with ISI strategies.

Answer 1

Answer: The answers are provided below.

Explanation:

Import substitution industrialization is a theory that is used by developing countries to reduce their dependence on the developed countries. Import substitution industrialization is used to protect infant industries and develop other sectors so that locally produced goods are competitive with the imported goods.

An example was used by Argentina in the 1970s as the country imposed high tariffs on imported goods and encouraging local production of leather and textile and also make the economy self sufficient and protecting local firms from foreign competition.

The main issues with import substitution industrialization is that it can lead to inefficiency on the part of local firms due to lack of competition from foreign firms. The benefits to be derived from specialisation and trading with another country may also not be gotten.