Chapter 6: Trade & Development I: Import Substitution Industrialization §

(F) Day of the week: Wednesday Class: IS302 Created Time: December 9, 2020 2:16 PM Database: Class Notes Database Date: December 9, 2020 2:16 PM Days Till Date: Passed Last Edited Time: June 9, 2021 10:42 AM Type: Presentation Notes

Group 4

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Why developing countries distance themselves from …

Status of Developing Liberalization §

Developing countries were relatively liberal

• Monoexporter: export only one type of product (agriculture)
• Enclave Agriculture:

After WW2: developing countries protected their markets

• Industrialization: shift from agriculture to manufacturing
• Government Intervention: Industrial policy, big push

Why did they switch?

The Structuralist Critique: Markets, Trade, and Economic §

Why shift resources from agricultural production into manufacturing industries

• Higher standard of living is achieved through industrilization
• The shift of industries only happens when governments put policies

Structuralism §

Dependence on agriculture returns less profit than focusing on manufacturing

To do this you need government intervention

• Complementary Demand: all manufacturing industries must start selling at the same time, because industries staff will buy products from each other with their wages
  • Subsistence Economy: people make food and products for the purpose of providing themselves with necessity only, not for export
• Pecuniary External Economy: cooperation is needed for relating industries to increase/decrease their production

Term of Trade: the exporting country has to export lots more to import small amount of manufactured products

• Developing countries get poorer

Why?

Because agricultural products normally go down in price while high-tech manufactured goods will increase

Income Elasticity of Demand: demand for manufactured product will increase as income increase while agricultural products’ demand will fall instead

Types of countries practicing ISI §

Import Substitution Industrialization: to domestically produce products which you used to import.

• Stage 1: Easy ISI: are simple consumer goods such as beer, shoes, furniture to serve domestic market
• Stage 2:
  • Secondary ISI: shift from simple manufactured goods to durable goods (cars, intermediate goods, capital goods) (Latin America)
  • Export Substitution Strategy: produce manufactured goods to target exporting to international market (semi-conductor, computers…) (East Asian Countries)