Dr. Alejandro Diaz-Bautista Economic Policy Import Substitution Dependency Theory
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Dr. Alejandro Diaz-Bautista Economic Policy Import Substitution Dependency Theory

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Dependency theory and the import substitution period....

Dependency theory and the import substitution period.
Alejandro Díaz-Bautista, Ph.D.
Professor of Economics and Researcher at COLEF
Visiting Research Fellow and Guest Scholar 2008, Center for U.S.-Mexican Studies, University of California San Diego (UCSD).
Graduate School of International Relations & Pacific Studies IR/PS. University of California, San Diego.

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  • 1. Economic Policy in Latin America Dependency theory and the import substitution period. Alejandro Díaz-Bautista, Ph.D. [email_address] Professor of Economics and Researcher at COLEF Visiting Research Fellow and Guest Scholar 2008, Center for U.S.-Mexican Studies, University of California San Diego (UCSD). April 2, 2008 Graduate School of International Relations & Pacific Studies IR/PS University of California, San Diego
  • 2. What is Import Substitution Industrialization (ISI)?
    • Industrial development program based on the protection of local infant industries through protective tariffs, import quotas, exchange rate controls, special preferential licensing for capital goods imports, subsidized loans to local infant industries, etc.
    • A deliberate effort to replace major consumer imports by promoting the emergence and expansion of domestic industries such as textiles, shoes, household appliances, usually requiring the imposition of protective tariffs and quotas to protect new or infant industries.
  • 3. Import Substitution
    • Import-substitution industrialization (ISI) was adopted as an economic growth and development policy strategy by most of the larger Latin American countries between the late 1940s (Chile and Brazil in the late 1930s.) and
    • the early 1960s. It was thought that in a world of stagnant demand for the type of primary products which the region had traditionally exported,ISI would provide a new dynamism and a greater amount of independence from the economic fluctuations which originated in the traditional industrial centers of the world.
  • 4. Import Substitution
    • Import substitution industrialization (also called ISI) is a trade and economic policy based on the premise that a country should attempt to substitute products which it imports (mostly finished goods) with locally produced substitutes.
    • Even though ISI is a development theory with links to dependency theory, and not naturally a trade theory, its political implementation and theoretical rationale are rooted in trade theory. Baer (1972) contends that all countries which have industrialized after the UK, went through a stage of ISI where the large part of investment in industry was directed to replace imports.
  • 5. Import Substitution Industrialization
    • As a set of economic development policies, ISI policies are theoretically grounded on the Singer-Prebisch thesis and practically on the infant industry argument.
    • From these postulates it derives a body of practices, which are commonly: an active industrial policy to subsidize and orchestrate production of strategic substitutes, protective barriers to trade (like tariffs), an overvalued currency to help manufacturers import capital goods (heavy machinery), and discouragement of foreign direct investment.
  • 6. Import Substitution Industrialization
    • ISI could be outward-looking in that it promotes exports (like South Korea) or inward-looking without significant links to world markets (like in Latin America).
    • In both cases, external competition by imports in the markets of the targeted industries are discouraged by tariffs. Hence, policies to pursue ISI have a strong protectionist component and are not favored by advocates of free trade.
  • 7. Import Substitution Industrialization
    • The major advantages claimed for ISI include: increases in domestic employment (reducing dependence on labor non-intensive industries such as raw resource extraction and export); resilience in the face of a global economic shocks (such as recessions and depressions); less long-distance transportation of goods (less fuel consumption and greenhouse gas and other emissions).
    • The disadvantages claimed for ISI is that the industries that it creates are inefficient and obsolete, and that the focus on industrial development impoverishes local commodity producers who are primarily rural.
  • 8. Dependency Theory
    • Dependency theory is a body of social science theories, both from developed and developing nations, with the notion that resources flow from a periphery of poor and underdeveloped nations to a core of wealthy states, enriching the latter at the expense of the former.
    • It is a central contention of dependency theory that poor countries are impoverished and rich countries enriched by the way poor states are integrated into the world system. This is based on the Marxist analysis of inequalities within the world system, but contrasts with the view of free market economists who argue that free trade advances poor states along an enriching path to full economic integration.
  • 9. Dependency Theory
    • The premises of dependency theory are as follows:
    • Poor nations provide market access to wealthy nations (by allowing their people to buy manufactured goods and obsolete or used goods from wealthy nations), permitting the wealthy nations to enjoy a higher standard of living.
    • Wealthy nations actively perpetuate a state of dependence by various means. This influence may be multifaceted, involving economics, media control, politics, banking and finance, education, culture, sport, and all aspects of human resource development.
    • Wealthy nations actively counter attempts by dependent nations to resist their influences by means of economic sanctions and/or the use of military force.
  • 10.
    • Dependency theory first emerged as a reaction to liberal free trade theories in the 1950s, advocated by Raúl Prebisch, whose research with the Economic Commission on Latin America (ECLA) suggested that decreases in the wealth of poor nations coincided with increases in the wealth of rich nations.
    • Paul Baran developed dependency theory from Marxian analysis. The theory quickly divided into diverse schools. Andre Gunder Frank, adapted it to Marxism. "Standard" dependency theory differs from Marxism, however, in arguing against internationalism and any hope of progress in less developed nations towards industrialization and a liberating revolution. Theotonio Dos Santos described a 'new dependency', which focused on both the internal and external relations of less-developed countries of the periphery, derived from a Marxian analysis.
  • 11.
    • Former Brazilian President Fernando Henrique Cardoso wrote extensively on dependency theory, arguing that it was an approach to studying the economic disparities between the centre and periphery.
  • 12.
    • Dependency theory became popular in the 1960s and 1970s as a criticism of modernization theory (also known as development theory), which was falling increasingly out of favor due to continued widespread poverty in much of the world.
    • As such, dependency theory stands in sharp contrast with views of development tied to classical and free-market economics.
  • 13. Foreign Investment as Percent of Total Gross Domestic Investment in Latin America During ISI Years         Post-ISI decapitalization -0.3% 1984 Global recession/early post-ISI 18.1% 1982 ISI 10.3% 1980 ISI 7.2% 1970 ISI 6.0% 1960 Pre-ISI decapitalization -1.1% 1950 Prevailing Industrial Policy Foreign Investment as % of Total Investment Year
  • 14. Raul Prebisch (1901-1985)
    • Argentinian economist at the United Nations Commission for Latin America (UNCLA) and later at UNCTAD, credited with having developed the dependency thesis of economic development theory.
    • Prebisch argued that the colonial enterprise and international trade had not been necessarily useful for economic development, as the earlier theorists might imply. Rather, by changing and gearing the instititutional, production and socio-economic structures of a country towards the First World, colonialism had created a rather unique set of structural problems in these countries, namely export-orientation and unbalanced growth.
    • Third World countries were not as much underdeveloped as they were badly developed.
  • 15. Raul Prebisch (1901-1985)
    • He was born in Tucumán, Argentina, and studied at the University of Buenos Aires from 1918 to 1922, where he later taught.
    • In the 1930s he was converted to protectionism and the economics of John Maynard Keynes. The orthodox belief was supported by the spectacular economic growth of Argentina from the 1860s to 1920s as the country exported large amount of beef and wheat to the world power of the time, Great Britain. However, by the 1930’s the Great Depression and the growing economic dominance of the United States, which exported beef and wheat rather than buying them, had devastated the Argentinian economy.
  • 16. Raul Prebisch (1901-1985)
    • Argentina’s plight forced Prebisch to reexamine the principle of comparative advantage described by David Ricardo, marking the creation of a new school of economic thought in the late 1940s.
    • Prebisch separated out the purely theoretical aspects of economics from the actual practice of trade and the power structures that underlie trading institutions and agreements.
    • His resulting division of the world into the economic centre, consisting of industrialized nations such as the U.S., and the periphery, consisting of primary producers, remains used to this day.
    • Prebisch was president of Argentina's central bank.
  • 17. Raul Prebisch (1901-1985)
    • He was appointed director of the Economic Commission for Latin America (ECLA or CEPAL) in 1948. In 1950, he released a study The Economic Development of Latin America and its Principal Problems that stated what is now known as the Singer-Prebisch thesis, a major contribution to economic thought.
    • German economist Hans Singer had separately arrived at a similar conclusion as Prebisch at almost the same time, although his paper used a more empirical approach based on analysis of world trade statistics.
  • 18. Raul Prebisch (1901-1985)
    • From May 1950 to July 1963 Mr. Prebisch was Executive Secretary of the United Nation's Economic Commission for Latin America and the Caribbean (ECLAC). Later he became Secretary-General of the United Nations Conference on Trade and Development (UNCTAD). In 1984 he returned to Argentina to work with the democratic government that took over in 1983.
    • Prebisch died in Santiago, Chile, April 1986.
  • 19. Raul Prebisch (1901-1985)
    • The Singer-Prebisch thesis (often referred to as the Prebisch-Singer thesis or hypothesis) is the observation that the terms of trade between primary products and manufactured goods tend to deteriorate over time.
    • Developed independently by economists Raul Prebisch and Hans Singer in 1950, the thesis suggests that countries that export commodities (such as most developing countries) would be able to import less and less manufactured goods for a given level of exports.
  • 20. Raul Prebisch (1901-1985)
    • Prebisch argued that international trade reinforced a bad development path. With distorted national institutions and economic structures, Third World countries were defenseless to the distortionary development implied by trade-induced interaction with heavily-financed First World monopolistic capitalism.
    • Third World countries were being dragged into a state of dependency upon the First World, becoming the producers of raw material for First World manufacturing development or a center-periphery model.
  • 21. Import Substitution in Mexico
    • From 1956 to 1970 the Mexican economy made an eighty degree turn, trying to grow inward, via import substitution, ie, Mexico should produce what they consumed.
    • The Mexican economy was based on the dynamism of the industrial sector and price stability in line with production and some financial problems.
    • Industrial growth in the period 1940 -1970 maintained a sustained level of growth, although based on a captive market by the protectionist economic policy designed by the Government. A situation that resulted in the development of firms without foreign competition.
    • This prevented the creation of a truly independent and modern industrial sector that would help the social development of post-revolutionary Mexico.
  • 22. Argentina Economic Policy Brief
    • Argentina benefits from abundant natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base, that was once one of the wealthiest nations with a large middle class but this segment of the population has suffered by a succession of economic crises.
    • Argentina's economy started to slowly lose ground after 1945 when it went from a wealthy nation with a strong and prosperous economy to a deep recession in the mid 50s, losing its place in the position of prosperous industrialized nations.
    • The economy further declined during the military dictatorship that lasted from 1976 to 1983.
  • 23. Argentina’s Import Substitution Policy
    • After World War II, a new model of economic policy began to emerge in Argentina.
    • Import substitution industrialization, or ISI, was adopted into Argentina's economic policy.
    • Where the government had adopted a more laissez-faire approach with export-led growth, ISI meant direct government intervention. In an effort to limit the country's dependence on the international market, the government-induced economic measures like the nationalization of domestic industry were aimed at encouraging a more internal, self-sustaining development.
  • 24. Argentina’s Import Substitution Policy
    • While Argentina was able to harness a modest level of economic growth through ISI, the level economic development was not sufficient enough to bring Argentina to developed-level status. Analogous to export-led growth where Argentina experienced some industrialization but did not become "industrialized", in the mid-twentieth century Argentina underwent development but did not become fully "developed".
  • 25. Argentina Economic Policy Brief
    • The Falklands War (Spanish: Guerra de las Malvinas/Guerra del Atlántico Sur), also called the Falklands Conflict/Crisis, was fought in 1982 between Argentina and the United Kingdom over the disputed Falkland Islands, South Georgia and the South Sandwich Islands. The Falkland Islands consist of two large and many small islands in the South Atlantic Ocean east of Argentina, and their name and ownership have long been disputed.
    • The war was triggered by the occupation of South Georgia by Argentina on 19 March 1982 followed by the occupation of the Falklands, and ended when Argentina surrendered on 14 June 1982. War was not actually declared by either side. The initial invasion was considered by Argentina as the re-occupation of its own territory, and by Britain as an invasion of a British overseas territory, and the most recent invasion of British territory by a foreign power.
  • 26. Argentina Economic Policy Brief
    • In the period leading up to the Falkland Islands war, Argentina was in the midst of a devastating economic crisis and large-scale civil unrest against the military junta that had been governing the country since 1976.
  • 27. Argentina Economic Policy Brief
    • The economic and political effects of the Falklands war were strong in both countries. A wave of patriotic sentiment swept through both countries. The Argentine loss prompted even larger protests against the military government, which hastened its downfall, and the economy continued to decline.
  • 28.
    • In the United Kingdom, the government of Prime Minister Margaret Thatcher was bolstered. It helped Thatcher's government to victory in the 1983 general election, which prior to the war was seen as by no means certain.
    • The war has played an important role in the culture of both countries, and has been the subject of several books, films, and songs.
  • 29. Argentina Economic Policy Brief
    • During the dictatorship, the government took out large loans with high interest rates from the IMF and private banking institutions. The country engaged in a disorganized and corrupt rapid liberalization that marked the end of its industrial hegemony in Latin America.
    • During the military dictatorship over 400,000 companies of all sizes went bankrupt. The economic decisions made from 1983 till 2001 failed to revert the situation.
  • 30.
    • The 1990’s began with hyperinflation in Argentina. President Carlos Menem imposed a peso-dollar fixed exchange rate in 1991 to stop hyperinflation and adopted far-reaching market-based economic policies, dismantling protectionist barriers and business regulations, and implementing a privatization program. These reforms contributed to significant increases in investment and growth with stable prices through most of the 1990’s.
    • The the peso was tied to the dollar at an artificially high rate that could only be maintained by flooding the market with dollars. As a result the foreign debt increased enormously and state companies and services were privatized. The total opening up of the market to foreign goods, which up until then were produced locally, resulted in the collapse of local industry. So while part of the population was saving in dollars, traveling overseas, and purchasing imported and luxury goods cheaply, the rest of the population was experiencing an increase in both poverty and unemployment
    Argentina Economic Policy Brief
  • 31. Argentina Economic Policy Brief
    • The IMF and the world economists praised the liberalization of the Argentine market, and the country was presented as a “model case”.
    • Toward the end of the 1990s, large fiscal deficits and overvaluation of the pegged peso caused a gradual slide into economic crisis. In 1998 a period of profound economic recession began. This was a direct result of the economic measures which dominated the decade of the 90’s and which produced a false sense of stability and well being. By the end of his term in 1999, these accumulating problems and perceived corruption had made Menem unpopular.
    • The Menem and de la Rúa administrations faced diminished competitiveness in exports, massive imports which damaged national industry and reduced employment, chronic fiscal and trade deficits, and the contagion of several economic crises. Unemployment reached as high as 25% of the economically active population, and another 15% had only part-time work).
  • 32. Argentina Economic Policy Brief
    • The Asian financial crisis in 1998 precipitated an outflow of capital that culminated in a recession and the economic crisis in November 2001.
    • The governing coalition was forced to undertake a series of measures including the freezing of bank accounts. This was done to halt the flow of capital out of the country and to stem the growing debt crisis. However, a climate of popular discontent was unleashed as a result.
    • On December 20, 2001, Argentina was thrown into its worst institutional and economic crisis for several decades. There were violent street protests, which brought about clashes with the police and resulted in several fatalities. The increasingly chaotic climate, amidst bloody riots, finally resulted in the resignation of President de la Rúa.
  • 33. Argentina Economic Policy Brief
    • By 2002, Argentina had defaulted on its debt, its GDP had shrunk, unemployment was more than 25%, and the peso had depreciated 75% after being floated and devalued.
    • Economic Policies in spending control and heavy taxes on then-soaring exports allowed the state to regain resources and conduct monetary policy.
    • In 2003, the return of import substitution economic policies and soaring exports, coupled with lower inflation and expansive economic measures, triggered a surge in the GDP. This was repeated in 2004 and 2005, creating millions of jobs and encouraging internal consumption. Capital flight decreased, and foreign investment slowly returned. An influx of foreign currency from exports created a huge trade surplus.
    • The Central Bank was forced to buy dollars from the market, and continues to do so from time to time to prevent the Argentine peso from appreciating significantly and cutting competitiveness.
  • 34. Argentina Economic Policy Brief
    • The situation by 2006 was further improved. The economy grew 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006, and 8.7% in 2007.
    • Inflation, estimated at around 12 to 15% (official numbers are 9.8% for 2006), has become an issue again, and income distribution is still considerably unequal.
  • 35. A Reconsideration of Import Substitution Henry J. Bruton
    • Bruton (1998) paper studies the origins of an import substitution strategy of development and summarizes the consequences of that strategy. It also reviews the problems that led to its failure. The fundamental difficulty was its discouragement of the indigenous social learning necessary for sustained independent development in Latin America.
    • An effective strategy must protect and induce domestic learning without penalizing exporting.
  • 36.  
  • 37. A Reconsideration of Import Substitution Henry J. Bruton
    • Bruton’s paper studies the import substitution story. It reviews the rationale of the import substitution approach found in the 1950’s and early 1960’s.
  • 38. A Reconsideration of Import Substitution Henry J. Bruton
    • It makes a summary of actual developments in a number of countries from 1950 to 1970, when import substitution was the followed policy in Latin America.
  • 39. A Reconsideration of Import Substitution Henry J. Bruton
    • Bruton also summarizes developments in the post 1980 period and discusses the difficulties with openess.
    • Bruton has the notion that the primary sources of development are learning and knowledge accumulation.
  • 40. A Reconsideration of Import Substitution Henry J. Bruton
    • According to dependency theorists, only an autonomous state bureaucracy capable of imposing a logic of import-substitution industrialization can offer a feasible solution to economic dependency in the long run (Bruton 1998).
    • Thus, policies were designed to discourage imports (especially of consumer goods) and promote local production. The emphasis was placed on escalating import-substitution quickly to include not only consumer goods but also intermediate inputs and capital goods.
    • Dependency theorists are, of course, aware of the "inefficiencies" of import-substitution due to lack of experience in applying new technology, limited competition, insufficient scale of production, and diversion of resources away from agriculture and export-oriented activities.
  • 41. A Reconsideration of Import Substitution Henry J. Bruton
    • Even a skeptic of import substitution, Bruton (1998) has concluded that with respect to economic policy instruments, high effective rates of protection were not necessarily correlated with poor economic results, as a number of countries in Latin America, later achieved economic success.
  • 42. A Reconsideration of Import Substitution Henry J. Bruton
    • The principal reason for the failure of import substitution was that, in practice, it created an environment that discouraged learning.
  • 43.
    • Mercosur or Mercosul (Spanish: Mercado Común del Sur, Portuguese: Mercado Comum do Sul, English: Southern Common Market) is a RTA (Regional Trade Agreement) between Brazil, Argentina, Uruguay, Venezuela, and Paraguay, founded in 1991 by the Treaty of Asunción, which was later amended and updated by the 1994 Treaty of Ouro Preto. Its purpose is to promote free trade and the fluid movement of goods, peoples, and currency.
    • Mercosur origins trace back to 1985 when Presidents of Argentina Raúl Alfonsín and Brazil José Sarney signed the Argentina-Brazil Integration and Economics Cooperation Program or PICE (Spanish: Programa de Integración y Cooperación Económica Argentina-Brasil).
    • Bolivia, Chile, Colombia, Ecuador and Peru currently have associate member status. Venezuela signed its membership agreement on 17 June 2006, and became a full member on July 4 of the same year.
    Trade Agreements
  • 44. Mercosur Full members: Argentina, Brazil, Paraguay, Uruguay, Venezuela Associate members: Bolivia, Chile, Colombia, Ecuador, Peru Headquarters (secretariat): Montevideo, Uruguay Official languages: Spanish, Portuguese Combined GDP: US$ 1.1 trillion
  • 45. Mercosur Meeting
    • MERCOSUR Presidents Welcome Venezuela to Trading Block in 2006.
  • 46.
    • President Hugo Chávez stressed his belief that the “Free Trade Area of the Americas (FTAA) and Mercosur are absolutely incompatible.”
    • He said, “500 years of colonialism, we think that’s enough and this event today is, and I say this from the depths of my heart, an answer from the legacy of Bolivar… I believe that we are laying, here, today in Caracas, a fundamental cornerstone for the new freedom of the people of South America. For the people of our America.” “None of our countries, alone, not even Brazil, could carry out a true integral project of development. Unity is absolutely imperative.”
  • 47.
    • Brazilian President Luiz Inacio “Lula” da Silva asked to increase the communication between the countries, and announced that they are one step closer to their dreams of integration in South America:
    • “ What we are demonstrating today, with the inclusion of Venezuela into Mercosur, demonstrates that our forefathers were not far off, as Bolivar, his dream lives in our hearts and minds of the people of Latin America. Today, we are one step closer to making that a reality. I think that the signing of the protocol that we signed today is more than a document that guarantees more than just trade between us. It is more than a document that permits our businessmen to do business. The document that we signed today is the is the concretion of a dream of millions of people, millions of Latin Americans who have, over many centuries, died believing that it is possible to achieve integration.”
  • 48.  
  • 49.
    • The G-3 is a free trade agreement between Colombia, Mexico, and Venezuela that came into effect on January 1, 1995, which created an extended market of 149 million consumers with a combined GDP (Gross domestic product) of US$486.5 billion. The agreement states a ten percent tariff reduction over ten years (starting in 1995) for the trade of goods and services among its members. The agreement is a third generation one, not limited to liberalizing trade, but includes issues such as investment, services, government purchases, regulations to fight unfair competition, and intellectual property rights.
  • 50. G3 Trade Bloc
    • Venezuelan President Hugo Chávez announced in May 2006 that his country would withdraw from the G3 trade bloc, due to differences with its two partners.
    • In April, Venezuela had also announced its plans to leave the Andean Community, after Colombia and Peru reached free trade agreements with the United States, while Ecuador kept in negotiations for one. Venezuela has since joined Mercosur.
    • Mexico announced that a replacement for Venezuela would be sought among interested countries, such as Panama, Ecuador and Peru.
  • 51.
    • The Andean Community of Nations (in Spanish: Comunidad Andina de Naciones, abbreviated CAN) is a trade bloc comprising the South American countries of Bolivia, Colombia, Ecuador, Peru and Venezuela (which is in the process of leaving the bloc). The trade bloc was called the Andean Pact until 1996 and came into existence with the signing of the Cartagena Agreement in 1969. Its headquarters are located in Lima, Peru.
    • The Andean Community has 120 million inhabitants living in an area of 4,700,000 square kilometers, whose Gross Domestic Product amounted to US$745.3 billion in 2005, including Venezuela.
  • 52. FTAA
    • The Free Trade Area of the Americas (FTAA) (Spanish: Área de Libre Comercio de las Américas (ALCA), French: Zone de libre-échange des Amériques (ZLÉA), Portuguese: Área de Livre Comércio das Américas (ALCA) was a proposed agreement to eliminate or reduce the trade barriers among all countries in the Americas. In the latest round of negotiations, trade ministers from 34 nations met in Miami, United States, in November 2003 to discuss the proposal.
    • The proposed agreement was an extension of the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States.
  • 53.
    • Against the FTAA agreement are positioned Cuba, Venezuela and later Bolivia, Ecuador, and Nicaragua, which entered the Bolivarian Alternative for the Americas in response.
    • President Evo Morales of Bolivia has referred to the US-backed Free Trade Area of the Americas, as "an agreement to legalize the colonization of the Americas."
  • 54.
    • The North American Free Trade Agreement NAFTA (Spanish: Tratado de Libre Comercio de América del Norte (TLCAN)) is the trade bloc in North America whose members are Canada, Mexico, and the United States. It came into effect on January 1, 1994 and (as of 2008) it remains the largest trade bloc in the world in terms of combined GDP of its members.
  • 55. A New Organization of the Americas
    • Felipe Calderón, Mexico’s president, said: “There is consensus to strengthen hemispheric unity with the creation of a new institution without the United States and Canada.” The news was announced at the Unit for Latin America and Caribbean Summit held in Cancun and where 25 presidents were present. Furthermore, the Rio Group meeting was also held in the same place.
    • The 32 Latin American nations have decided to form a new organization to advance the interests of the Americas, including Cuba, excluding the United States and Canada.
    • At the moment the organism name is not defined and it would begin operating in July 2011 with the new meeting of the Unity Summit in Caracas, Venezuela.
  • 56. Conclusions
    • Latin America's situation of economic dependency, international economic crises before and after World War II and the characteristics of the world capitalist economy that emerged after World War II, had a significant impact on the rise and fall of import-substitution industrialization (ISI).
    • There was considerable variation in the timing and sequencing of this impact and the extent to which these international factors affected the rise and fall of the ISI policy model in Chile, Argentina, Mexico, and Brazil.
    • Differences in domestic factors, such as state formation, party systems, and the social coalitions that supported and opposed import-substitution industrialization, account for that variation. Moreover, the decline of the ISI model should be understood in terms of the degree of departure from industrial policy and inclusive social policy, not in terms of some intrinsic incapacity.
  • 57. Conclusions
    • ISI had some positive effects on the larger economies of Latin America.
    • It was responsible for periods of high economic growth rates during which the economies underwent some profound structural changes.
    • After a while, however, it also caused some severe imbalances, threatening the continued growth and socio-economic stability of a number of countries.
  • 58. References
    • Baer, Werner (1972), "Import Substitution and Industrialization in Latin America: Experiences and Interpretations", Latin American Research Review vol. 7 (Spring): 95-122.
    • Bruton, Henry (1998), “A Reconsideration of Import Substitution”, Journal of Economic Literature, Vol. 36, No. 2 (Jun.), pp. 903-936.
    • Diaz-Bautista, Alejandro (2003), “The Determinants of Economic Growth: Convergence, Trade and Institutions”. “ Los determinantes del Crecimiento Economico: Comercio Internacional, Convergencia y las Instituciones”. El Colegio de la Frontera Norte y Editorial Plaza y Valdez.
    • United Nations Conference on Trade and Development (2005) Trade and Development Report Chapter 3: Evolution of the Terms of Trade and its Impact on Developing Countries.
    • Singer, Hans (1998) The South Letter (30) "The Terms of Trade Fifty Years Later - Convergence and Divergence"
  • 59. Economic Policy in Latin America Dependency theory and the import substitution period. Alejandro Díaz-Bautista, Ph.D. [email_address] Professor of Economics and Researcher at COLEF Visiting Research Fellow and Guest Scholar 2008, Center for U.S.-Mexican Studies, University of California San Diego (UCSD). April 2, 2008 Graduate School of International Relations & Pacific Studies IR/PS University of California, San Diego