Industrialization strategy based on import substitution trade policy

Abstract

Industrialization is the main hope for most poor countries trying to increase their levels of income. Industrialization through import substitution (ISI) is one among many industrialization strategies. It is a relatively old strategy which was applied early during the industrialization of Western Europe. It is based on the protectionism of the domestic production capacity. It was later applied by Latin American nations since the 1930s to speed up their industrialization process. The theoretical bases of the ISI were first developed by Raul Prebisch and Hans Singer in 1950 who suggested the procurement of production means to decrease the imports of manufactured goods in order to cope with the phenomenon of terms of trade deterioration of the LDCs. Several authors have stressed the ISI strategy aspects such as its economic measures (like taxation), its historical aspects and also the great case studies on it around the world in Latin America and south-east Asia. However, ISI was not studied at a microlevel, which is the company level, and nobody asked the question how one should operate a company in a country where the industrial strategy is ISI-oriented.