A Thesis on the Rationales of Import Substitution Industrialization Strategy
The purpose of this research paper is to try to clarify and evaluate the major issues and arguments in the debate on Import Substitution Industrialization Strategy (ISI) between the neoclassical economists and the development economists. In particular, it will focus on some basic underlying models employed by the two schools of thought, rather than on specific policy recommendations given by either school. It will conclude that the critiques against ISI from the neoclassical economists are based on a static equilibrium model, which can not fully comprehend the dynamic relationship between growth and ISI at a macroeconomic level. This paper starts by examining the historical background and formative influences of ISI, then goes on to compare and contrast the structuralist rationales for ISI and neoclassical rationales against it. The conclusion I reached is that the fundamental rationales behind ISI-- the infant industry argument, external economies and linkages effects--remain intellectually valid. The issue of terms of trade has important relevance to development economics but should be studied in a different context. The general conclusion of this paper is that import substitution as an industrialization strategy remains viable and may be of great importance or less developed countries that want to catch up economically with industrialized countries.
allocation analyze Balassa Bhagwati capital accumulation capital goods sector Chapter Coase Theorem commodity terms comparative advantage competitive concept Corden costs country's debate demand development economics development economists development process domestic divergences domestic firms domestic markets domestic production economic development economic growth economic theories enterprises experiences of NICs export pessimism factor foreign exchange growth rate Harrod-Domar Model Import Substitution Industrialization income increasing industrial policy industries and externalities industry argument infant industry infant-industry argument international trade investment ISI strategy issue Krueger Krugman Latin American countries LDCs less developed countries linkage effects manufacturing market orientation neoclassical economic neoclassical economic theory neoclassical economists neoclassical resurgence NICs and Japan optimal pecuniary external economies primary commodities problems promotion rationales for ISI rigidities South Korea static structural transformation structuralist Substitution Industrialization Strategy Taiwan tariff terms of trade theory of domestic trade argument trade intervention trade policies trade protection trade theory underdevelopment unequal exchange