Handbook on International Trade Policy
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Handbook on International Trade Policy

Edited by William A. Kerr and James D. Gaisford

The Handbook on International Trade Policy is an insightful and comprehensive reference tool focusing on trade policy issues in the era of globalization. Each specially commissioned chapter deals with important international trade issues, discusses the current literature on the subject, and explores major controversies. The Handbook also directs the interested reader to further sources of information.
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Chapter 41: Import Substitution Industrialization

James B. Gerber


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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