import substitution industrialization pros and cons lucas greene callahan mcgrath jonathan vinson

Import Substitution IndustrializationPROS AND CONS

LUCAS GREENE

CALLAHAN MCGRATH

JONATHAN VINSON

What is it?•Import substitution industrialization (ISI) is a development strategy

•Transition from agriculture to manufacturing-based society

•Implement trade barriers to protect “infant industries”

•Commonly protected industries• Consumer durables• Textiles• Soft drinks and tobacco products• Processing of agriculture and raw materials

When did it happen?•Popular in the 1960’s throughout the developing world, with varying degrees of success

•Turkey began an ISI program in 1934 called the First Five Year Industrial Plan

•Almost every ME country tried this at some point

PROS •Diversify to shield economy from volatile commodity prices

•Increase value added in the developing country

•Forward and backward linkages

World Commodity Prices, 1960-2014

CONS•Limited number of domestic manufacturers

•ISI ignored the countries’ comparative advantage in the agricultural sector

•New industries were often capital-intensive, not labor-intensive

•Countries often kept overvalued exchange rates to lower cost of inputs to protected industries

Conclusion•Participation• Turkey (1930’s-1970’s)• Egypt (1960’s-1970’s)• Iran (1930’s)• Iraq (early-late 1970’s)• Morocco & Jordan (Non-participants)

•Only countries with large oil supplies could afford to protect infant industries

•Most of the ISI programs collapsed

•ISI program: Good for as long as it lasts

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Akgül, L. Hilal. “The Transition From Industrial Plans To Development Planning In Turkey After The Second World War.” International Journal Of Turcologia 2.4 (2007) 71-82. Academic Search Complete. Web. 2 Mar. 2015

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