We explain what the import substitution industrialization model was and how it came about. Also, what are its characteristics, advantages and disadvantages.
The import substitution model, also known as import substitution industrialization (ISI), was an economic model adopted by numerous countries in Latin America and other territories of the so-called Third World during the first third of the 20th century , especially during the period after of the First World War and the postwar period of the Second.
This was intended to be carried out with a strong and protectionist State, with important interventions in the trade balance of these countries, through import tariffs, high exchange rates and subsidies and support for local producers.
The European economic depression that characterized the first third of the 20th century had a significant impact on the economy of peripheral countries.
With their economy in crisis, European countries suspended the purchase of imported goods , or imposed high tariffs, seeking to protect their own consumption.
This caused a drop in the currencies of the Third World countries , which in turn were unable to import what they usually consumed, since the drop in industrial activity meant less consumption of raw materials . In this context, the import substitution industrialization model emerges as a response and an attempt to industrialize their developing nations on their own account .
Dependent economies, which import a large part of their consumer goods, on the other hand, are particularly susceptible to foreign influences and respond less well to world consumption crises.
The primary objectives of the import substitution industrialization model point to the development and growth of the local industrial structure , which would begin to produce those traditionally imported goods.
For this, the State would have to offer economic benefits and incentives , as well as a protective tariff system for national products.
The positive consequences of the import substitution industrialization model tended to the following:
The ISI process comprised two recognizable stages:
The industrial capacity of the Latin American region diversified enormously thanks to these processes, which were usually accompanied by significant technological investment, but in general terms, ISI occurred very unevenly on the continent.
This is why even today there are significant economic and industrial differences between many of the countries that aspire to economic and commercial integration, with entities such as Mercosur or the Andean Community of Nations.
The Argentine model defended above all the national agriculture , at the same time that the private manufacturing industry was protected and an attempt was made to stimulate exports with industrial value. This meant a certain degree of maturity in the constitution of Argentine society , with an increase in urbanization and formal employment, extensive schooling and development of the service sector.
All this had a positive impact on wages and social security , leading to greater general well-being, but it also gave rise to the reaffirmation of local oligopolies that the State itself would later be forced to combat.
Thus, oil and mining industries were nationalized , in addition to the railroads, which were in foreign hands, and when President Lázaro Cárdenas assumed the presidency, Mexico had survived the Great Depression.
Then the ISI began, which led to growth "inwards" , by increasing the road network, promoting the agricultural sector and reducing foreign control over the local economy. This was achieved by giving the State the leading role in economic order and change in the nation.
By the 1940s , the Mexican manufacturing sector was one of the most dynamic in the nation , hand in hand with public investment with subsidies, tariff exemptions, and growth in exports that produced new foreign exchange reserves.
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