Unraveling Hypertext_ Analyzing Postmodern Elements in Literature.pptx
Report on Import substitution industrialization
1. 1
Import
The term import is derived from the conceptual meaning as to bring in the goods and services into the
port of a country. The buyer of such goods and services is referred to an "importer" who is based in
the country of import whereas the overseas based seller is referred to as an "exporter". Thus an import
is any good (e.g. a commodity) or service brought in from one country to another country in a
legitimate fashion, typically for use in trade. It is a good that is brought in from another country for
sale. Import goods or services are provided to domestic consumers by foreign producers. An import in
the receiving country is an export to the sending country.
Types of import
There are two basic types of import:
1. Industrial and consumer goods
2. Intermediate goods and services
Companies import goods and services to supply to the domestic market at a cheaper price and better
quality than competing goods manufactured in the domestic market. Companies import products that
are not available in the local market.
There are three broad types of importers:
1. Looking for any product around the world to import and sell.
2. Looking for foreign sourcing to get their products at the cheapest price.
3. Using foreign sourcing as part of their global supply chain.
Direct-import refers to a type of business importation involving a major retailer (e.g. Wal-Mart) and an overseas manufacturer. A
retailer typically purchases products designed by local companies that can be manufactured overseas. In a direct-import program,
the retailer bypasses the local supplier (colloquial middle-man) and buys the final product directly from the manufacturer, possibly
saving in added costs. This type of business is fairly recent and follows the trends of the global economy.
Definition
"Imports" consist of transactions in goods and services (sales, barter, gifts or grants) from non-
residents residents to residents. The exact definition of imports in national accounts includes and
excludes specific "borderline" cases. A general delimitation of imports in national accounts is given
below:
An import of a good occurs when there is a change of ownership from a non-resident to a resident;
this does not necessarily imply that the good in question physically crosses the frontier. However, in
specific cases national accounts impute changes of ownership even though in legal terms no change of
ownership takes place (e.g. cross border financial leasing, cross border deliveries between affiliates of
the same enterprise, goods crossing the border for significant processing to order or repair). Also
smuggled goods must be included in the import measurement.
Imports of services consist of all services rendered by non-residents to residents. In national accounts
any direct purchases by residents outside the economic territory of a country are recorded as imports
of services; therefore all expenditure by tourists in the economic territory of another country are
considered as part of the imports of services. Also international flows of illegal services must be
included
2. 2
Import substitution industrialization
Import substitution industrialization or "Import-substituting Industrialization" (called ISI) is a trade
and economic policy that advocates replacing imports with domestic production. It is based on the
premise that a country should attempt to reduce its foreign dependency through the local production
of industrialized products. The term primarily refers to 20th century development economics policies,
though it was advocated since the 18th century.
It has been applied to many countries in Latin America, where it was implemented with the intention
of helping countries to become more self-sufficient and less vulnerable by creating jobs and relying
less on other nations. The ISI is based primarily on the internal market. The ISI works by having the
state lead economic development through nationalization, subsidization of vital industries (including
agriculture, power generation, etc.), increased taxation to fund the above, and highly protectionist
trade policy. Import substitution industrialization was gradually abandoned by developing countries in
the 1980s and 1990s due to disappointment with the results.
Adopted in many Latin American countries from the 1930s until around the 1980s, and in some Asian
and African countries from the 1950s on, ISI was theoretically organized in the works of Raúl
Prebisch, Hans Singer, Celso Furtado and other structural economic thinkers, and gained prominence
with the creation of the United Nations Economic Commission for Latin America and the Caribbean
(UNECLAC or CEPAL). Insofar as its suggestion of state-induced industrialization through
governmental spending, it is largely influenced by Keynesian thinking, as well as the infant industry
arguments adopted by some highly industrialized countries, such as the United States, until the 1940s.
ISI is often associated with dependency theory, though the latter adopts a much broader sociological
outlook which also addresses cultural elements thought to be linked with underdevelopment.
History
Even though ISI is a development theory, its political implementation and theoretical rationale are
rooted in trade theory – it has been argued that all or virtually all nations that have industrialized have
followed ISI.
Mercantilist economic theory and practices of the 16th, 17th, and 18th century frequently advocated
building up domestic manufacturing and import substitution. In the early United States, the
Hamiltonian economic program, specifically the third report and magnum opus of Alexander
Hamilton, the Report on Manufactures, advocated that the US become self-sufficient in manufactured
goods. This formed the basis of the American School, which was an influential force during the
United States's 19th century industrialization.
Indeed, Baer contends that all countries which have industrialized after the United Kingdom went
through a stage of ISI in which the large part of investment in industry was directed to replace imports
(Baer, pp. 95–96). Going further, in his book Kicking away the ladder, Korean economist Ha-Joon
Chang also argues, based on economic history, that all major developed countries – including the
United Kingdom – used interventionist economic policies to promote industrialization and protected
national companies until they had reached a level of development in which they were able to compete
in the global market, after which those countries adopted free market discourses directed at other
countries in order to obtain two objectives: to open their markets to local products and to prevent them
from adopting the same development strategies which led to the developed nations' industrialization.
3. 3
Theoretical basis
As a set of development policies, ISI policies are theoretically grounded on the Singer-Prebisch thesis,
on the infant industry argument, and on Keynesian economics. From these postulates, it derives a
body of practices, which are commonly: an active industrial policy to subsidize and orchestrate
production of strategic substitutes, protective barriers to trade (such as tariffs), an overvalued currency
to help manufacturers import capital goods (heavy machinery), and discouragement of foreign direct
investment.
In many cases, however, these postulates did not apply: on several occasions, the Brazilian ISI
process, which occurred from 1930 until the end of the 1980s, involved currency devaluation as a
means of boosting exports and discouraging imports (thus promoting the consumption of locally
manufactured products), as well as the adoption of different exchange rates for importing capital
goods and for importing consumer goods. Moreover, governmental policies toward investment were
not always opposed to foreign capital: the Brazilian industrialization process was based on a tripod
which involved governmental, private, and foreign capital, the first being directed to infrastructure
and heavy industry, the second to manufacturing consumer goods, and the third, to the production of
durable goods (such as automobiles). Volkswagen, Ford, GM and Mercedes all established in Brazil
in the 1950s and 1960s.
The major and unifying postulate of ISI can thus be described as an attempt to reduce foreign
dependency of a country's economy through local production of industrialized products, whether
through national or foreign investment, for domestic or foreign consumption. It should be noted, as
well, that import substitution does not mean import elimination: as a country industrializes, it begins
to import other kinds of goods which become necessary for its industry, such as petroleum, chemicals,
and the raw materials it may lack. The real objective of import substitution is therefore not to
eliminate trade but to lift it to higher stage, that of exporting value-added products, not as susceptible
to economic fluctuations as raw materials, according to the Singer-Prebisch thesis.
East Asia
ISI was rejected by most nations in East Asia in the 1960s, and some economists[who?] attribute the
superior performance of East Asia in the 1970s and 1980s to this difference in policies. Indeed, East
Asian policies are most commonly not referred to as ISI.
Most "East Asian Tigers" rejected import substitution policies, though they maintained high tariff
barriers. The strategy followed by those countries was to focus subsidies and investment on industries
which would make goods for export, and not to attempt to undervalue the local currency. This export
promotion approach to industrialization in the East Asian countries contrasts with the strategy of ISI.
In pursuing this and to boost its competitiveness in the 1970s, South Korea made large investments
into heavy and chemical industries, such as shipbuilding, steel and petrochemicals. This focus on
export markets allowed them to create competitive industries.
4. 4
Advantages and disadvantages
The major advantages claimed for ISI include increases in domestic employment (reducing
dependence on labor non-intensive industries such as raw resource extraction and export); resilience
in the face of global economic shocks (such as recessions and depressions); less long-distance
transportation of goods (and concomitant fuel consumption and greenhouse gas and other emissions).
A disadvantage claimed for ISI is that the industries that it creates are inefficient and obsolete as they
are not exposed to internationally competitive industries, which constitute their rivals, and that the
focus on industrial development impoverishes local commodity producers, who are primarily rural.
Reasons for ISI
• It is dangerous to rely on one primary commodity export industry.
• Deteriorating terms of trade for necessitate intervention.
• Labor intensive exports trap workers in low wage industries.
• Helps “infant industries” grow.
• Cut imports rather than encourage exports .
5. 5
Externally: ISI Distorts BoP
Imports are blocked = less currency in international market = inflated exchange rate.
This contributes to less competitive export industries = reduced tax revenue from abroad.
High Fx = negative BoP = budget deficit
Domestic Effects of ISI
At the same time, ISI necessitates government investment in modernization at expense of
traditional industries.
Demands for skilled workers.
Low interest rates cause low savings rate and investment in heavy industry.
Inflation due to high cost of goods manufactured domestically.
Concluding Thoughts
6. 6
• ISI served a purpose.
• It was a step in the process of industrialization.
• Government can stimulate free market forces, but not replace them.
• ISI needed an exit (transition) strategy from the start.
Crises
ISI can cause crises by several ways:
Chronic problems with the balance of trade and payments
Import substitution was supposed to reduce reliance on world trade, but every nation needs to import
something not available locally like raw materials, machinery, spare parts. The more a country
industrialized, the more it needs these imports, and ISI is strongly biased against exports. Trade
protection and overvalued exchange rates raised domestic prices and made export less competitive
and export taxes furthermore discourage foreign sales. So the industrializing countries are unable to
export enough to buy the imports they needed.
Deep recessions
The faster the economy grows, the more it needs imports, but exports cannot keep up with the pace of
imports and so the country runs out of foreign currency. The governments try to restrict import to
essentials and raise interest rate to bring money to the country and keep it at home. They devalue the
currency to raise the price of imports and make exports more attractive, also reducing the countries'
purchasing power, which resulted in usually deep recessions.
ISI countries tended to run substantial budget deficits and inflation
Government subsidized industrial investments give tax breaks to industrial investors and targeted
spending at politically important groups but such spending chronically outpaces government revenue,
and these budget deficits atr usually covered by printing more money. The result was inflation, which
makes domestic goods more expensive, which in turn reduces exports even further.
7. 7
Negative impact on income distribution
Many farmers migrated to the cities in search for jobs in the new industries. Since import-substitution
growth was very capital intensive. Few of the farmers who flooded into the cities find the jobs that
industrialization had promised. ISI countries end up with dual economies;
On one hand, modern capital-intensive industries with skilled, well-organized workers earning
relatively high wages
On the other hand, a mass of struggling farmers and urban poor frozen out of the modern economy,
given very low wages and excluded from the social protections which modern sector workers received
Incentive for capitalists to resist state planning
To carry out industrial planning, states need to build the necessary state institutions, such as a
Planning Commission, to formulate production targets and later enforce them. But since ISI industries
were protected from international competition, capitalists are not compelled by the market to meet
international standards of efficiency. Thus, capitalists often resist state efforts to enforce industrial
plans and force investments in improving productivity.
Goodbye ISI – Hello Trade Reform
• Strong labor unions wanted, government could grow fast enough, and class tension erupted.
• Crawling peg Fx rate = inflation.
• Export subsidies = government borrowing = more deficit & more imports.
The Rise of ISI
• The Great Depression caused a drop in commodity prices, foreign exchange reserves dried up,
and countries could not buy necessary imports.
• Lots of exports and nothing to import.
8. 8
Implementation of ISI
• Economy-wide strategy designed to establish new industries.
• Included: licensing, tariffs, overvalued Fx, and government investment in local industry (built
plants, etc.)
• Easy access to credit / low interest rates.
International Trade relation table of Bangladesh:-
Major Exports : Readymade garments, frozen foods (shrimps), leather, leather
products, jute, jute products, tea, ceramic, textile fabrics, home
textile, chemical product, light engineering products including bi-
cycle.
Major Imports : Oil, edible oil, petroleum product, wheat, seeds, fertilizer, yarn,
capital goods, machinery, power generating machinery, scientific &
medical equipment, iron & steel, motor vehicles, raw cotton,
chemicals.
Major Trading Partners : USA, EU countries, China, India, Pakistan, Japan, South Korea,
Canada, Australia, Malaysia, Hong Kong, Taiwan, Thailand,
Indonesia, Saudi Arabia and UAE
www.mincom.info
Export Import & Foreign Remittance Earnings Information:-
Fiscal Year Total Export Total Import Foreign Remittance
Earnings
2007–2008 $14.11b $25.205b $8.9b
2008–2009 $15.56b $22.00b+ $9.68b
2009-2010 $16.7b ~$24b $10.87b
2010-2011 $22.93b $32b $11.65b
11. 11
Conclusion
From the above discussion we are understand the ISI. In our developing country we are consider the
SME & small business. This is only the way how we can overcome the problems. We can make our
economy better & prosperous. Easily implement the ISI, export more & import less. We can control
the high inflation of our currency take our country as a export based country.
The major advantages claimed for ISI include increases in domestic employment (reducing
dependence on labor non-intensive industries such as raw resource extraction and export); resilience
in the face of global economic shocks (such as recessions and depressions); less long-distance
transportation of goods (and concomitant fuel consumption and greenhouse gas and other emissions).