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Import Substitution Industrialization

Import Substitution Industrialization. Premises: Development should be achieved by looking inward Promote and develop backward and forward linkages The State is the primary actor of development

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Import Substitution Industrialization

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  1. Import Substitution Industrialization

  2. Premises: • Development should be achieved by looking inward • Promote and develop backward and forward linkages • The State is the primary actor of development • Growth of domestic private firms and the state owned firms was secured by high import barriers (protectionism) • Transnationals would be welcome in strategic sectors to provide technology

  3. Industrial Policy • Form state owned firms • Form mixed economic enterprises • Require government purchases from national firms • Require joint firms to establish joint ventures • Pressure foreign firms to increase domestic content

  4. International Instruments • Tariffs on final goods • Quotas on imports • Exchange rate overvaluation • Exchange rationing • Import licences

  5. Fiscal and Monetary Policy • Subsidies for cheap inputs such as electricity • Subsidies for public transportation • Tax breaks in production • Preferential interest rates • Accommodating monetary policy

  6. The Crisis of ISI • Due to the limited size of the internal market in Latin America, the ISI became exhausted • Exports halted because of the overvalued currency and non-competitive domestic firms • Failed to create an enterprenurial class • Foster the creation of inefficient economic institutions • Agriculture was neglected • Monetary policy led to inflation

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