Import Substitution Industrialization

Definition

Import substitution industrialization (ISI) is an economic policy that emphasizes replacing foreign imports with domestic production in order to foster industrial growth and reduce dependency on foreign goods. This approach aims to boost local industries, create jobs, and improve self-sufficiency, often implemented through tariffs, subsidies, and state intervention. Over time, ISI has been a critical part of economic strategies in various Latin American countries, particularly during the mid-20th century as a response to external economic pressures.

5 Must Know Facts For Your Next Test

1. ISI was widely adopted in Latin America during the 1930s through the 1970s as countries sought to reduce their vulnerability to global market fluctuations.
2. This policy led to the establishment of many state-owned enterprises and the expansion of domestic industries in various sectors, including textiles and manufacturing.
3. Critics of ISI argue that it resulted in inefficiencies, as protected industries often lacked competition and innovation due to government support.
4. Over time, the limitations of ISI became evident, leading many countries to shift toward export-led growth strategies in the late 20th century.
5. Successful ISI policies initially helped countries like Brazil and Mexico achieve significant industrialization, but they faced challenges related to sustainability and external debt.

Review Questions

• How did import substitution industrialization influence the industrial landscape in Latin America during the mid-20th century?
  • Import substitution industrialization significantly transformed the industrial landscape in Latin America by fostering the development of local industries that replaced foreign imports. Governments implemented protective tariffs and subsidies to encourage domestic production, which led to job creation and increased industrial output. However, while ISI allowed for initial growth and diversification of industries, it also created challenges such as inefficiency and over-reliance on state support.
• Evaluate the successes and shortcomings of import substitution industrialization as an economic policy in Latin America.
  • Import substitution industrialization achieved initial successes by promoting domestic industries and reducing reliance on foreign imports. Countries like Brazil saw rapid industrial growth and employment opportunities. However, its shortcomings became apparent as many protected industries struggled with competitiveness and innovation due to a lack of market pressures. As global economic dynamics shifted, the limitations of ISI led to economic crises and prompted many nations to reconsider their strategies towards more open markets.
• Assess the long-term impacts of import substitution industrialization on the economic policies adopted by military governments in Latin America.
  • The long-term impacts of import substitution industrialization influenced the economic policies adopted by military governments in Latin America by shaping their approach towards state intervention and control. Military regimes often embraced ISI as a means to stabilize their economies amid political turmoil. However, as these governments recognized the unsustainability of heavy protectionism, many began shifting towards neoliberal policies that favored deregulation and integration into global markets. This transition reflects a broader evolution in economic thinking that emerged from both the successes and failures experienced under ISI.

Related terms

Tariffs: Taxes imposed on imported goods to make them more expensive than domestic products, thus encouraging consumers to buy locally produced items.

State-led Development: An economic strategy where the government plays a central role in planning and promoting industrial growth, often through direct investment and regulation.

Export-led Growth: An economic strategy focused on boosting exports as the primary engine of economic growth, contrasting with import substitution.