Import Substitution
Industrialization
 Premises:
• Development should be achieved by looking
inward
• Promote and develop backward and forward
linkages
• The State is the primary actor of development
• Growth of domestic private firms and the state
owned firms was secured by high import barriers
(protectionism)
• Transnationals would be welcome in strategic
sectors to provide technology
Industrial Policy
 Form
state owned firms
 Form mixed economic enterprises
 Require government purchases from
national firms
 Require joint firms to establish joint
ventures
 Pressure foreign firms to increase
domestic content
International Instruments
 Tariffs
on final goods
 Quotas on imports
 Exchange rate overvaluation
 Exchange rationing
 Import licences
Fiscal and Monetary Policy
 Subsidies
for cheap inputs such as
electricity
 Subsidies for public transportation
 Tax breaks in production
 Preferential interest rates
 Accommodating monetary policy
The Crisis of ISI

Due to the limited size of the internal market in Latin
America, the ISI became exhausted

Exports halted because of the overvalued currency and
non-competitive domestic firms

Failed to create an enterprenurial class

Foster the creation of inefficient economic institutions

Agriculture was neglected

Monetary policy led to inflation