page_title: Import substitution industrialization
section_title: History
hierarchical_section_title: Import substitution industrialization / History
caption_attribution_description: English: U.S. Trade Balance and Trade Policy (1895–2015)
context_page_description: Import substitution industrialization is a trade and economic policy that advocates replacing foreign imports with domestic production. It 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, but it has been advocated since the 18th century by economists such as Friedrich List and Alexander Hamilton.
  ISI policies have been enacted by countries in the Global South with the intention of producing development and self-sufficiency by the creation of an internal market. The state leads economic development by nationalization, subsidization of vital industries, increased taxation, and highly-protectionist trade policies. ISI was gradually abandoned by most developing countries in the 1980s and after the fall of the Soviet Union because of its failure in providing development and, thereafter, the insistence of the IMF and World Bank on their structural adjustment programs aimed at the Global South.
  In the Todaro & Smith fourfold category, Import Substitution is a "secondary inward" approach to development.
context_section_description: ISI is a development theory, but 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-20th century as a form of developmental theory that advocated increased productivity and economic gains within a country. It was an inward-looking economic theory practiced by developing nations after World War II. Many economists then considered the ISI approach as a remedy to mass poverty by bringing a Third World country to First World status through national industrialization. Mass poverty is defined as "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 U.S. to become self-sufficient in manufactured goods. That formed the basis of the American School in economics, which was an influential force in the country during its 19th-century industrialization.
  Werner Baer contends that all countries that have industrialized after the United Kingdom have gone through a stage of ISI in which much investment in industry was directed to replace imports (Baer, pp. 95–96). Going further, in his book Kicking Away the Ladder, the South 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. Those countries adopted free market discourses directed at other countries to obtain two objectives: to open their markets to local products and to prevent them from adopting the same development strategies that had led to the industrialization of the developed countries.
caption: U.S. trade balance and trade policies (1895–2015)
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