Trade and Development Issues for the 1980s

Over the last several decades, economists have debated the relevance of two alternative strategies for developing countries to achieve industrialisation and growth. One camp, whose spokesmen included a number of prominent Latin American economists, stressed the potential advantages of growth through ‘import substitution’ policies. This strategy suggests high tariff and nontariff barriers be erected around domestic industries to replace foreign supply. Under a protective umbrella of artificial trade restraints, it was theorised that local firms would have the opportunity to achieve economies of scale associated with larger production volumes, or to lower unit costs through specialisation or factors associated with the learning curve. However, a number of practical disadvantages often resulted from attempts to apply import substitution policies with the result that this strategy has experienced declining professional favour.1