Import Substitution Revisited in a Darkening External Environment

Summary In the 15 to 20 years after the Second World War, import substitution (IS) was the dominant method of industrialisation, both in theory and in practice. In the subsequent fifteen years or so, say from 1965 to 1980, import substitution was heavily criticised and held responsible, particularly by the emergent neoclassical school, for many of the ills and distortions in developing countries. More recently, with the world recession, balance-of-payments crises, debt crises and rising protectionism in industrial countries, a definite reassessment of import substitution is clearly noticeable. The chapter argues that such a re-evaluation of import substitution should not be in the nature of a combination or synthesis of IS and EO — the export orientation (EO) heavily recommended and praised by the more recent critics of IS. The chapter argues that the Republic of Korea provides a good model of the right kind of synthesis, rather than the market-oriented ‘neutrality’ between IS and EO now preached by the neoclassicals. The chapter argues that the main trouble with the IS strategy was not inherent in the strategy itself, but due to the way in which it was implemented. Recent empirical evidence has shown that since the onset of the first world recession of 1973, the countries which have relied on IS rather than EO have not done any worse, and for the most recent years the presumption must be that they have done better. The examination of this last proposition should be a high priority for research.