Import Substitution Industrialization (ISI)

Definition

Import Substitution Industrialization (ISI) is an economic policy aimed at reducing a country's dependence on foreign goods by promoting domestic production. This approach encourages governments to protect and support local industries through tariffs, subsidies, and other incentives, fostering economic self-sufficiency and industrial growth.

5 Must Know Facts For Your Next Test

1. ISI was widely adopted in Latin America during the mid-20th century as a response to economic dependence on foreign imports and global market fluctuations.
2. The policy often led to the establishment of state-owned enterprises in key sectors such as manufacturing, which were seen as essential for national development.
3. While ISI initially resulted in industrial growth, it also faced criticism for leading to inefficiencies, lack of competition, and reliance on state support.
4. Countries implementing ISI often struggled with balance of payments issues, as protective measures limited access to foreign goods while domestic industries were not always competitive.
5. Over time, many countries transitioned away from ISI towards export-oriented growth strategies due to the limitations and challenges faced under ISI policies.

Review Questions

• How did Import Substitution Industrialization aim to reshape the economic landscape of countries adopting it?
  • Import Substitution Industrialization aimed to reshape the economic landscape by reducing dependency on foreign imports and fostering domestic production. By implementing tariffs and subsidies, countries sought to protect their local industries from external competition. This shift was intended to stimulate economic growth, create jobs, and establish self-sufficiency in essential goods, thereby altering the dynamics of national economies.
• Discuss the advantages and disadvantages of Import Substitution Industrialization as a strategy for economic development.
  • The advantages of Import Substitution Industrialization included the initial boost to local industries, job creation, and enhanced national self-reliance. However, disadvantages arose as many industries became reliant on government protection, leading to inefficiencies and reduced competitiveness. This reliance often resulted in trade imbalances and ultimately hindered long-term economic sustainability as countries struggled to adapt to a more open global market.
• Evaluate the long-term impacts of Import Substitution Industrialization on Latin American economies and their transition towards globalization.
  • The long-term impacts of Import Substitution Industrialization on Latin American economies were significant, leading to both short-term growth and long-term challenges. While ISI initially spurred industrial development, many nations faced stagnation due to inefficiencies and over-dependence on protectionist measures. As these economies transitioned towards globalization in the late 20th century, they encountered difficulties competing internationally. This shift highlighted the need for structural reforms that embraced market liberalization while addressing the vulnerabilities exposed during the ISI era.

Related terms

Tariff: A tax imposed on imported goods to make them more expensive than locally produced products, thereby encouraging consumers to buy domestic.

Subsidy: Financial assistance provided by the government to support local businesses and industries, making them more competitive against foreign imports.

Industrial Policy: A government strategy aimed at promoting specific sectors of the economy through various means such as investment, regulations, and support mechanisms.