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Import Substitution Industrialization – ISI

Definition

Import substitution industrialization is a trade and economic policy which advocates replacing foreign imports with domestic production. ISI 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, although it has been advocated since the 18th century by economists such as Friedrich List and Alexander Hamilton.

Import Substitution Industrialization - ISI

What is the 'Import Substitution Industrialization (ISI)'

Import substitution industrialization (ISI) is a theory of economics typically utilized by developing countries or emerging market nations seeking to decrease dependence on developed countries and to increase self-sufficiency. The implemented theory targets protection and incubation of newly-formed domestic industries, aiming to fully develop the sectors so that goods produced have the ability to compete with imported goods. Under the ISI theory, this process makes local economies self-sufficient.

Explaining 'Import Substitution Industrialization (ISI)'

The ISI theory emerged in Latin American countries following World War II. The primary goal of the implemented theory is to protect, strengthen and grow local industries utilizing a variety of tactics, including tariffs, import quotas, and subsidized government loans. Countries implementing this theory are aiming to build up production channels for each stage of a product.

A Brief History of the ISI Theory

The term "import substitution industrialization" is a primary reference to development economics policies of the 20th century. The ISI theory has, however, been advocated since the 18th century, supported by economists such as Alexander Hamilton and Friedrich List.

Theoretical Basis

The ISI theory is based on a group of developmental policies. The foundation for this theory is composed of the infant industry argument, the Singer-Prebisch thesis and Keynesian economics. From these postulations, a group of practices can be derived: a working industrial policy that subsidizes and organizes a production of strategic substitutes; barriers to trade, such as like tariffs; an overvalued currency that aids manufacturers in importing goods; and a lack of support for foreign direct investment (FDI).


Further Reading


Dependency of the Russian industry on imports and the strategy of import substitution industrialization
ideas.repec.org [PDF]
… import substitution industrialization; dependency on imports; industry growth.; … F31 - International Economics - - International Finance - - - Foreign Exchange; F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General; …

Protectionism and the internationalization of capital: US sponsorship of import substitution industrialization in the Philippines, Turkey and ArgentinaProtectionism and the internationalization of capital: US sponsorship of import substitution industrialization in the Philippines, Turkey and Argentina
academic.oup.com [PDF]
… import substitution industrialization; dependency on imports; industry growth.; … F31 - International Economics - - International Finance - - - Foreign Exchange; F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General; …

The import-substitution model: Chile in comparative perspectiveThe import-substitution model: Chile in comparative perspective
journals.sagepub.com [PDF]
… import substitution industrialization; dependency on imports; industry growth.; … F31 - International Economics - - International Finance - - - Foreign Exchange; F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General; …

Import substitution and late industrialization: Latin America and Asia comparedImport substitution and late industrialization: Latin America and Asia compared
www.sciencedirect.com [PDF]
… import substitution industrialization; dependency on imports; industry growth.; … F31 - International Economics - - International Finance - - - Foreign Exchange; F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General; …

Import substitution industrialization in Latin America: Experience and lessons for the futureImport substitution industrialization in Latin America: Experience and lessons for the future
link.springer.com [PDF]
… import substitution industrialization; dependency on imports; industry growth.; … F31 - International Economics - - International Finance - - - Foreign Exchange; F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General; …

Import substitution and industrialization in Latin America: Experiences and interpretationsImport substitution and industrialization in Latin America: Experiences and interpretations
www.jstor.org [PDF]
… import substitution industrialization; dependency on imports; industry growth.; … F31 - International Economics - - International Finance - - - Foreign Exchange; F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General; …

41 Import substitution industrialization41 Import substitution industrialization
books.google.com [PDF]
… import substitution industrialization; dependency on imports; industry growth.; … F31 - International Economics - - International Finance - - - Foreign Exchange; F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General; …



Q&A About Import Substitution Industrialization – ISI


Who first advocated for this theory?

Alexander Hamilton and Friedrich List were early advocates for this theory.

What is ISI?

Import substitution industrialization (ISI) is a theory of economics typically utilized by developing countries or emerging market nations seeking to decrease dependence on developed countries and to increase self-sufficiency.

What are some examples of policies derived from ISI?

A working industrial policy that subsidizes and organizes a production of strategic substitutes; barriers to trade, such as like tariffs; an overvalued currency that aids manufacturers in importing goods; and a lack of support for foreign direct investment (FDI).

How does the ISI theory work?

The implemented theory targets protection and incubation of newly-formed domestic industries, aiming to fully develop the sectors so that goods produced have the ability to compete with imported goods.

Why was ISI used in the past?

Because it was believed that infant industries needed time before they could compete with established foreign industries.