IMPORT SUBSTITUTION By: Soham Vazirani

IMPORT SUBSTITUTION
Import substitution is a strategy under
trade policy that abolishes the import
of foreign products and encourages
production in the domestic market. The
purpose of this policy is to change the
economic structure of the country by
replacing foreign goods with domestic
goods
 BENEFITS OF IMPORT
SUBSTITUTION
Less dependency on other countries for necessity goods( A
recession in another country might stop imports leading to
scarcity of necessities)
Higher sales for domestic companies may lead to greater revenue
which will lead to an increase in employment. This will improve
the living standards of the economy.
Encourage the growth of sunrise/infant industries. These may not
grow big if import substitution does not take place.
 DISADVANTAGES OF IMPORT
SUBSTITUTION
Lack of external competition could lead to the inefficiency of
infant domestic industries. Hence, this would negatively affect the
growth.
Trade protection due to import substitution may lead to
overvalued exchange rates that cause a rise in domestic prices.
Moreover, it forces the government to spend more in the form of
subsidies to make goods internationally competitive. Government
spending has an opportunity cost which implies that another
industry may suffer.
Thank you!