Import Substitution Industrialization - History

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. Import Substitution was heavily practiced during the mid-1900s as a form of developmental theory which believed to increase productivity and economic gains within a country. This was an inward- looking economic theory practiced by developed nations post WW2. Many economists at the time considered the ISI approach as a remedy to mass poverty; to bring a third world country to first world standing through national industrialization. Mass poverty is defined as the: "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," (Bruton 905).

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 US to become self-sufficient in manufactured goods. This formed the basis of the American School, which was an influential force during the United States in the 19th century industrialization.

Werner Baer contends that all countries that 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 farther, 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 to obtain two objectives: open their markets to local products and prevent them from adopting the same development strategies that led to the developed nations' industrialization.

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