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VS.
IMPORT SUBSTITUTION
HAKAN YILMAZKUDAY
W
hy do some countries develop more than others? Do their
strategies on international trade have a role on this? In
this paper two different industrialization strategy, import
substitution (IS) and export promotion (EP), will be introduced. These
strategies will be compared. The advantages and the disadvantages
of these strategies on their development will be stated.
1
Export Promotıon vs. Import Substıtutıon
Why did some countries apply import substitution strategy until the
mid-1960s? According to which reasons such countries switched to
the export promotion strategy? Was it because of the changing
structure of the world, technology, or what?
2
Export Promotıon vs. Import Substıtutıon
There are three sources that put growth of a country into motion:
import substitution, export and the increase in internal demand. First
two of these are related to international trade effects; but the third is
related to expenditures inside the country. As we will discuss below,
the main point of import substitution is that the locally produced
goods are replaced with the imported goods.
3
Export Promotıon vs. Import Substıtutıon
1
This sections mostly draws on (Bruton 1989).
2
Also known as inward oriented strategy or inward orientation.
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Export Promotıon vs. Import Substıtutıon
5
Export Promotıon vs. Import Substıtutıon
In able to compete with the foreign industries, firstly the price level
must be appropriate. However there is no need for an appropriate
price level in a closed economy.
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Export Promotıon vs. Import Substıtutıon
7
Export Promotıon vs. Import Substıtutıon
Beyond the barriers, there is high level of prices and low quality of
goods at the countries that apply IS strategy. The local produces,
which know the absence of competition, may not make any research
and development. Moreover there may be monopolizations in the
absence of competition, which is in turn harmful for the allocation of
resources.
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Export Promotıon vs. Import Substıtutıon
3
Also known as export oriented strategy or outward orientation.
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Export Promotıon vs. Import Substıtutıon
10
Export Promotıon vs. Import Substıtutıon
11
Export Promotıon vs. Import Substıtutıon
Getting rid of (or a fall in) tariffs does not necessarily lead to
unprotected local producers. With a flexible (and probably high levels
of) exchange rate is the new way of protection for the local
producers.
12
Export Promotıon vs. Import Substıtutıon
There is still a debate that the EP strategy is the best one. Most of the
economists of the current time agree that IS is not an alternative for
EP strategy, but what is the alternative for EP? There is still a
discussion on this subject.
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Export Promotıon vs. Import Substıtutıon
References:
• Adelman Irma and Erinc Yeldan 2000. Is this the end of economic
development? Structural Change and Economic Dynamics 11: 95-
109
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