Import Substitution Industrialization

History

Average tariff rates for selected countries (1913-2007)

 

Tariff rates in Japan (1870–1960)

 

Average tariff rates in Spain and Italy (1860-1910)

 

Average tariff rates (France, UK, US)

 

Average tariff rates in United States (1821–2016)

 

U.S. trade balance and trade policies (1895–2015)

a After 9 October 1913, 25 per cent.
b After 9 October 1913, 16 per cent.

ISI is a development theory, but 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. Import substitution was heavily practiced during the mid-20th century as a form of developmental theory that advocated increased productivity and economic gains within a country. It was an inward-looking economic theory practiced by developing nations after World War II. Many economists then considered the ISI approach as a remedy to mass poverty by bringing a developing country to a developed status through national industrialization. Mass poverty is defined as "the dominance of agricultural and mineral activities – in the low-income countries, and in their inability, because of their structure, to profit from international trade".

Mercantilist economic theory and practices of the 16th, 17th, and 18th centuries frequently advocated building up domestic manufacturing and import substitution. In the early United States, the Hamiltonian economic program, specifically the third report and the magnum opus of Alexander Hamilton, the Report on Manufactures, advocated for the U.S. to become self-sufficient in manufactured goods. That formed the basis of the American School in economics, which was an influential force in the country during its 19th-century industrialization.

Werner Baer contends that all countries that have industrialized after the United Kingdom have gone through a stage of ISI in which much investment in industry was directed to replace imports. Going further, in his book Kicking Away the Ladder, the South 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. Those countries adopted free market discourses directed at other countries to obtain two objectives: to open their markets to local products and to prevent them from adopting the same development strategies that had led to the industrialization of the developed countries.