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Edited by William A. Kerr and James D. Gaisford
Chapter 41: Import Substitution Industrialization
James B. Gerber Origins of import substitution industrialization Import substitution industrialization (ISI) is an economic development strategy that was in wide use from approximately the end of World War II through the mid-1980s. At its zenith in the 1960s, it was adopted by developing countries in Africa, Asia, and especially Latin America. ISI was characterized by over valued exchange rates, high levels of protectionism, and extensive government interventions into production, all of which was justiﬁed by the assumption that market failures would limit industrial development in the world’s poorer regions. Macroeconomic problems associated with the Third World Debt Crisis of the 1980s caused many nations to reject ISI policies, although it remains a major component of development policy in a number of countries, Uzbekistan for example. In an early critique of the performance of ISI policies, Little, Scitovsky and Scott deﬁned it as follows: Industries have been set up to produce goods that were previously imported, and these goods have mainly been sold in the home market. Governments have ensured the proﬁtability of these industries by protecting them against the competing imports through tariﬀs and controls. (Little et al., 1970, 1) Although ISI is usually considered to have begun at the end of World War II, many countries adopted similar economic strategies prior to then as a way to cope with the loss of export markets and the unavailability of manufactured imports during the two world wars and the worldwide interwar depression (Thorp 1992). The ﬁrst...
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