An economic strategy aimed at encouraging national industrial growth so as to reduce imports of manufactured goods. It was associated with the United Nations Commission for Latin America and put into practice during the s. It is now generally accepted that the policy was a failure, as a strategy for industrialization, and it was progressively replaced by a greater emphasis on export-led industrialization.
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Recently viewed 0 Save Search. Your current browser may not support copying via this button. Subscriber sign in You could not be signed in, please check and try again. ISI theory is based on a group of developmental policies.
The foundation for this theory is composed of the infant industry argument, the Singer-Prebisch thesis, and Keynesian economics. From these economic perspectives, a group of practices can be derived: a working industrial policy that subsidizes and organizes the production of strategic substitutes , barriers to trade such as tariffs, an overvalued currency that aids manufacturers in importing goods, and a lack of support for foreign direct investment.
Related to and intertwined with ISI is the school of structuralist economics. Conceptualized in the works of idealistic economists and financial professionals such as Hans Singer, Celso Furtado, and Octavio Paz, this school emphasizes the importance of taking into account structural features of a country or a society in economic analysis. That is, political, social, and other institutional factors. A critical feature is the dependent relationship that emerging countries often have with developed nations.
In fact, Latin American structuralism has become a synonym for the era of ISI that flourished in various Latin American countries from the s to the s. Prebish outlined an interpretation of Latin America's burgeoning transition from primary export-led growth to internally oriented urban-industrial development in a report. That report became " the founding document of Latin American structuralism " to quote one academic paper and a virtual manual for import substitution industrialization.
They expanded the manufacturing of non-durable consumer goods, like food and beverages, and then expanded into durable goods, such as autos and appliances.
Some nations, like Argentina, Brazil, and Mexico, even developed domestic production of more advanced industrial products like machinery, electronics, and aircraft. Although successful in several ways, the implementation of ISI did lead to high inflation and other economic problems. When these were exacerbated by stagnation and foreign debt crises in the s, many Latin American nations sought loans from the IMF and the World Bank.
At the insistence of these institutions, these countries had to drop their ISI protectionist policies and open up their markets to free trade. Tax Laws. Emerging Markets. International Markets. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Economy Monetary Policy. Key Takeaways Import substitution industrialization is an economic theory adhered to by developing countries that wish to decrease their dependence on developed countries.
ISI targets the protection and incubation of newly formed domestic industries to fully develop sectors so the goods produced are competitive with imported goods. Developing countries began to reject ISI policy in the s and s. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear.
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