Describe the policies that would be associated with Import Substitutio

Describe the policies that would be associated with Import Substitution Industrialization. What are the primary criticisms of these policies?

What will be an ideal response?

ANSWER

Replacing imported manufactured goods with domestically produced products is the basis of import substitution. Tariffs and other trade restrictions were used, the government created or supported new industrial development, and in general the policies were aimed at reducing the need for foreign exchange earnings. Criticisms include that governments misallocate resources when they become too involved in the production process. Exchange rates were often overvalued. The policies favored urban over rural areas. Inequality often worsened. There was widespread rent seeking activity.