Question

What is import substitution industrialization? It is argued that import substitution is a misguided trade policy if the intent is to promote long-term economic growth. Explain the reasons underlying this argument.

Answer 1

Import substitution implies the production of goods at home countries that were hitherto being imported from the rest of the world. It discourages imports of goods and tries to produce imported items at home.

it neglected the benefits of specialization and countries tried to produce such goods where these countries did not have the right technology. Thus, these countries could not focus on the export and such actions resulted in the fall in exports. So the balance of payments crisis became more documented. Hence, import substitution was a misguided prescription.

These countries must have followed the policies of export promotion instead. Export promotion improves the balance of payment deficit. gradually, these countries went for major changes.