Question

1. A) Why developing countries followed the import substitution policy in 1960s?                                                    

B) What you mean by ‘Terms of Trade’? When the ‘Terms of Trade’ is said to be favorable to a country?

Answer 1

Import substitution policy is followed by developing countries in 1960s since they want to reduce their dependence on developed countries. This approach helps to boost to newly domestic companies so that they can compete with goods which are being imported . The aim of the developing countries was to make local economies as well their nation self sufficient. Developing countries who followed this policy shored up the production channel in each stage of development of the product. This approach helped to counter the comparitive advantage concept which occurred when countries specialised in producing the goods at lower opportunity cost and then exporting them