Effects of import substitution trade policies on kenyas industrialisation since independence ireri stellamarie wanja a project submitted in partial fulfillment of the requirements for the award of a masters degree in political science and public administration, university of. This chapter chronicles the evolution of industry in ghana over the postindependence era from an inward overprotected isi strategy of 196083 to an outward liberalized strategy during 19842000, and since 2001, to the private sectorled accelerated industrial development strategy based on valueaddition. The trade restrictions are intended to protect domestic industries so that they can gain comparative advantage and substitute domestic goods for formerly imported goods. The benefits and costs of import substitution in india was first published in 1975. According to the economic policy analysis, the developed economics promote their industrial base capacity through import substitution strategy. Import substitution industrialization isi is a trade and economic policy which advocates. In other words, are import substitution policies the. The import substitution approach substitutes externally produced goods and services, especially basic necessities such as energy, food, and water, with locally produced ones. Russias import substitution has not been a great success. Adam smith would categorize it as a policy by poor and austere societies. Import substitution as sustainable economic development. Import substitution industrialization isi definition. Between 1960 and 1970 zambia adopted an import substitution strategy for the development of its manufacturing sector in an effort to achieve a rapid industrialization process.
A method employed by a government to stimulate the economy by substituting domestic products for similar imported products. The idea of import substitution is to initially close a country from imports which will allow local firms in new infant industries. According to economist amsden, the import substitution was established to help developing countries enter. The most crucial characteristic of protection is that it is a relative concept. The regime advocated economic selfsufficiency through a policy of import substitution, which selectively but extensively, encouraged local industry via exorbitant import quotas. It will include both previous imports and nonimports. Moreover, even in terms of policy actions, state ownership in the manufacturing sector was in enterprises producing import substitution goods. A revision of the current model of the state policy of import substitution is proposed, based on the prevention of increased state protectionism that contributes to the. Import substitution import substitution is a trade policy aimed to promote economic growth by restricting imports that competed with domestic products in developing countries. Importsubstitution policy creates biases in the incentive structure and lowers the growth of potential exports in the long run.
Government strategy that emphasizes replacement of some agricultural or industrial imports to encourage local production for local consumption, rather than producing for export markets. In the subsaharan region, the process of import substitution followed the dynamic typical of any import substitution process. Numerical estimations of potential effects of russian import substitution policies indicate a decline in gdp, decrease in output of unprotected sectors and consumers welfare losses. Iscor the iron and steel corporation was established in 1928 to boost the productivity of heavy industry. Effects of import substitution trade policies on kenyas. Comparative analysis of the best practices in the economic policy of. Russias great import substitution maneuver boils down to a policy supporting low valueadded agriculture production that is unlikely to lift the economys growth rate from the current slow. Import substitution can also be discussed as a policy.
Pdf on sep 29, 2010, thomotuya, vincent chinyere thomotuya and others published the role of import substitution industrialization policy in the economy of nigeria find, read and cite all the. In this article we will discuss about import substitution and export promotion. Apr 15, 2005 the import substitution approach substitutes externally produced goods and services, especially basic necessities such as energy, food, and water, with locally produced ones. Import substitution may be described as a development strategy that seeks to accomplish both of these objectives. Import substitution industrialization isi is only one industrialization strategy among others. When defining the basic goals of the import substitution policy to ensure food safety, the authors analyze the areas of improving the doctrine of food safety and other statutory documents used within the import substitution policy to ensure food safety of the country.
The positive effect of the imposed import restrictions took place, but was very shortterm. Although these countries were the last to embark on the strategy of import substitution, they followed the same steps of. It is a mechanism mostly deployed by emerging economies that for long periods have been dependent on developed economies. Comparative analysis of the best practices in the economic. Development economists is import substitution cason and white 1. Introduction since independence in 1964, zambia followed and implemented various macroeconomic and development strategies. Import substitution industrialisation and economic growth. Import substitution and export promotion economics. Hence development has come to be seen as a process of contracting the traditional sector and its growthretarding institutions in favour of a growing modern industrial sector.
Isi is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. Import substitution policy creates biases in the incentive structure and lowers the growth of potential exports in the long run. In the latter period, industrialization, as in latin america, is a politically conscious strategy aimed at overcoming underdevelopment. The import substitution approach substitutes externally produced goods and services with locally produced ones. Contents1 export promotion and import substitution notes of entrepreneurship1. The dynamics of the gross domestic product and exportimport operations has. Jan, 2019 contents1 export promotion and import substitution notes of entrepreneurship1. Tdp 72008 import substitution and export promotion as. The second section deals with the pros and cons of the import substitution policy, which was adopted to speed up growth of the manufacturing sector.
Import substitution policy is a set of measures aimed at stimulating production and competitiveness of domestic goods, increasing of domestic demand optimization of demand for imports. This policy was intended to promote industrialization by protecting domestic producers from the competition of imports. Let us make indepth study of foreign trade policy with regards to importsubstitution versus export orientation. By doing so, local communities can put their hardearned money to work within their boundaries. Import substitution industrialization looking inward for the. Gk, general studies, optional notes for upsc, ias, banking, civil services. Export promotion pushes local production to manufacture for foreig. Trade policy plays an important role in achieving the objectives of rapid economic growth and selfreliance. The second section deals with the pros and cons of the importsubstitution policy, which was adopted to speed up growth of the manufacturing sector. Trade policy and import substitution import substitution is a strategy under trade policy that abolishes the import of foreign products and encourages for the production in the domestic market. What are the differences between import substitution and. The importance of export led growth and import substitution to stimulating economic growth in developing nations cannot be over emphasized and also has several policy implications.
The countries of latin america focused only on the domestic market without a combination of import substitution policy with the policy for promotion of the goods to the foreign market. In the early 1970s import substitution replacement of foreignproduced goods and services with those produced domestically and support for the agricultural sector were the two major aims of industrial policy. Export promotion, import substitution and economic. From the historical perspective of policy evolution, the postkorean war era can be distinguished into three phases. Import substitution an overview sciencedirect topics. A package of policies, called import substitution is, consists of a broad range of control, restriction and prohibitions such as import quotas and high tariffs on imports. In this study, import substitution is defined as a deliberate industrial policy adopted by governments to establish domestic industries to produce goods that previously were not produced domestically. The benefits and costs of import substitution in india. Advantages and disadvantages of import substitution, essay. Generally, import substitution strategies start with producing consumption goods that do not need a progressed technology, because lessdeveloped countries actually have industries for such a production. Import substitution industrialization isi was pursued mainly from the 1930s through the 1960s in latin americaparticularly in brazil, argentina, and mexicoand in some parts of asia and africa. Import substitution industrialization looking inward for. The term primarily refers to 20thcentury development economics policies, although it has been advocated. Pdf international experience of import substitution policies.
Import substitution replaces imports with local manufactures. Like many developing countries, kenyas early years of independence pursued an import substitution is strategy in which the government provided both direct support and tariff protection for the industrial sector. Import substitution industrialization is an economic theory adhered to by developing countries that wish to decrease their dependence on developed countries. Conceptual relevance of import substitution industrialisation the isi policy initiative has been faced with various criticisms over the past decades. The approach to be used in this policy framework is dual as it encourages and export oriented approach with import substitution for identified strategic industries. Import substitution industrialization isi is a trade and economic policy which advocates replacing foreign imports with domestic production. Import substitution may be encouraged through publicity campaigns, such as the buy american campaign launched to decrease trade deficits in the united states, or enforced by means of tariffs and. The process where a nation manufactures locally those commodities that were formally imported from how to cite this paper. The former may be interpreted correctly as identifying policies that are directed towards the reduction of imports by for instance tariffs and their substitution by domestic production. The implementation of the import substitution strategy as the key to. Government strategy that emphasizes replacement of some agricultural or industrial imports to encourage local production for. Distinct sets of policy goals and instruments can be identified for each phase. Thus, instruments designed to encourage import substitution may be introduced in the belief that they have no impact upon the export sector.
Pdf import substitution industrialization trade policy. The economics of russian import substitution free network. It aimed at strengthening the domestic production of those goods. Other articles where import substitution is discussed. Import substitution is an aggressive economic policy employed by emerging economies to promote domestic production and selfsufficiency in many sectors. Keywords trade policy import substitution trade liberalization protectionism jel classi. It is on the basis of these static and dynamic gains of trade that case for free trade or liberalisation of trade was bas been built. The premise of this theory is that a nation should try to reduce foreign dependency by producing industrialized products locally.
Understanding import substitution industrialization is an important step in unraveling the puzzle of latin american development. Government gradually adopts fullscale importsubstitution industrialization as a development policy, raising import controls on consumer goods but relaxing them on capital goods. The policy initiative was and still is criticised by some neoliberal advocates more noticeably in the 1970s and 1980s balassa, 1971. The purpose of this policy is to change the economic structure of the country by. Iss targets the protection and incubation of newly formed domestic industries to develop sectors fully, so the goods produced are competitive with imported goods. Import substitution industrialization is a theory of economics typically adhered to by developing countries or emergingmarket nations that seek to. Industrial policy was the core of the importsubstitution development strategy. Pdf a rich practical experience of implementing import substitution policies has been accumulated by now, mostly in developing countries. Protection, in the form of high tariffs or the restriction of imports through quotas, was applied indiscriminately, often to. This policy brief discusses the economic mechanisms triggered by import substitution policies, associated losses and conditions that ensure positive economic effects. In this case, the exports tend to be greater than the imports with the imports being minimized to restrict competition with local goods.
Meanwhile, many other developing countries such as latin america countries had committed to an alternative strategy, import substitution is. In its basic economic plan, the government of india has fostered a policy of import substitution in virtually all industrial sectors. Import substitution policy could be defined as putting various barriers to the importation of foreign goods to reduce the countries foreign dependency and providing these goods by producing them domestically ray, 1998 p657. The premise of this theory is that a nation should try to reduce foreign dependency.
Today ithas become painfully clear tljat industral growth alone is not able to alleviate the problems of mass poyrty,jncome inequality, unemployient and regional imbalancest. Most economists and policymakers view ldcs as consisting of large traditional and modern sectors. The longer isi prolonged the more foreign borrowing was demanded. The paper studies the problem of developing a strategy of import substitution. Import substitution industrialization is an economic and trade theory that advocates for the replacement of foreign imports with products that are produced domestically. Import substitution import substitution is entails the reliance on domestic production by a country. The last section brings together relevant research findings concerning the effects of this policy on the structure of the manufacturing sector, employment creation, income distribution and the. There are three sources that put growth of a country into motion. Import substitution industrialization is a trade policy in which countries produce industrialized goods in order to reduce foreign dependency. The broad policy interventions include priopritizing the development of industrial sectors into three.
It is determined by the need to reduce the dependence of transitive economy on economic leaders. The korean miracle 19621980 revisited kellogg institute. Policy of import substitution involves the development of the economy mainly through. Policies, resource management and sustainable strategies. Pdf import substitution industrialisation and economic growth.
Apr 11, 2019 import substitution industrialization is a theory of economics typically adhered to by developing countries or emergingmarket nations that seek to decrease their dependence on developed countries. Industry in ghana is mainly dominated by micro and small firms, privately owned and. Advantages and disadvantages of import substitution, essay sample. Oct 21, 2015 import substitution industrialization is an economic and trade theory that advocates for the replacement of foreign imports with products that are produced domestically. Government gradually adopts fullscale import substitution industrialization as a development policy, raising import controls on consumer goods but relaxing them on capital goods. Introduction it was the export promotion ep strategy that accounted for east asians states success of economic development. The import substitution policy could be varied among the goods. Import substitution policy versus export led growth strategy.
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