Import Substitution Model - What is it? origin, measurements, and more

Import substitution model

The import replacement process for national production.

What is the import substitution model?

The import substitution model is a process that consists of replacing a country's imports with the production of goods nationally, that is, with products produced exclusively in said territory.

Also known as Import Substitution Industrialization (ISI), this model seeks to increase domestic industrial production in developing countries, in order to replace imported products and thus access an independent economy.

This model has been used mainly by Latin American and third world countries; however, due to the way it was applied and different factors that intervened in the process, the results were very varied:

The implementation of the model produced positive consequences in most cases, resulting in an increase in the country's production, renewing industries, boosting the economy, and promoting job offers. However, it also brought negative results, which were manifested in the long term, such as monopolies in the market, price increases, among others.

Origin of the import substitution model

The origin of the import substitution model dates back approximately from the 16th to the 17th centuries, in the context of European mercantilism, where the main objective was to access a favorable trade balance.

Several European monarchies decided to establish tariff barriers to carry out their objective of commercializing more and only acquiring what is necessary for international trade relations. Among the strategies to carry out this goal was the implementation of customs tariffs by the French minister Jean Baptista Colbert, who wanted to promote the accumulation of monetary wealth during the mandate of Louis XIV.

Measures of the import substitution model

The main measures of the import substitution model are mentioned below:

• Implementation of taxes on imports.
• Promote domestic production with the help of certain strategies.
• Grant loans and incentives for local growth.
• Promote export.
• Subsidies to local producers.
• Prevent foreign investment.

Advantages of the import substitution model

The main advantages of the import substitution model are detailed below:

• Decreases in unemployment levels, from the great demand for workers in industries.
• Short-term improvement of the national economy.
• Modernization of industries.
• Increase in industrialization.
• Greater control over imports and exports was carried out.
• Strengthening of national industries.
• Lower poverty rates generally in the short term.
• Increase in local consumption.
• Increase in national production.

 

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