Export Promotion Strategy vs. Import Substitution Strategy

A larger developed country will have numerous products it produces and exports. A surplus of imports, as one may imagine, can be disastrous.

The US for the first time, saw the need to expand its global market operations by means of increasing the amount of goods being

The Americas, now known as Latin America, has gone through many changes in its history, from being conquered by Spain and Portugal, to the people fighting for its independence and finally, making a living as newly independent countries. From the years 1850 to the end of the 19th century, each region had influences, specifically those that dealt with the after effects colonial rule had on the land. Nations that made up Latin America began modifying different portions in their government in attempts to benefit the majority of the people. More or so, they accomplished this goal, each with their own challenges. Evidently, changes within the social, political and economic systems were focused on external factors.

The Structural Adjustment Policy (SAPs), when policies required economic reorganization toward less government involvement in industry, agriculture, and social services is a big topic in globalization in Middle and South America (Pulsipher & Pulsipher 2012). The people rebelled on this attempt to globalization by electing governments, and now SAPs has been joined by growth in regional free trade agreement with North American Free Trade and Mesocour to reduce tariffs and other barriers among neighboring and other countries (Pulsipher & Pulsipher 2012). Throughout the region nearly everyone depends on the informal economy as a buyer or seller. Hopefully the new economy may help. (Pulsipher & Pulsipher 2012). Other examples of globalization is the role of remittances in this region among the countries and sometimes farther away (Pulsipher & Pulsipher

Krueger argues that trade liberalization is the only way developing countries can spur a rapid economic growth. He argues that industry substitutes industrialization (ISI) is a failed policy when it comes to development of developing countries. Unlike Stiglitz, he mentioned even with the protection, the developing countries growth slows down eventually. The main intention of ISI was to provide protection for domestic industries against the developed countries industries. Because of that protection, the export earning grew less rapidly and real GDP

With the increase in industrialization, particularly rail roads and steam boats, Latin America could efficiently export more goods. The installation of railroads and increased trade stabilized the economy of many countries. As long as Europe and the United States required raw materials, the economy would continue to grow. With the economy growing, political stability followed. This is demonstrated in Chasteen’s essay “Governance did become more orderly. As the profits of the export boom rose, government revenues from import/export taxes rose too…Higher government revenues afforded middle-class people new employment opportunities…Greater stability and prosperity attracted further investment from aboard intensifying trade, and the cycle repeated itself” (Chasteen, 207). As more money flowed into the continent, the more the government improved. Using the available revenue from the export boom, local governments could afford better equipment and put down rebellions with less casualties. The government was better able to provide more individuals with employment opportunities, thus stabilizing the politics in the Spanish Americas.

During the late 1800s, Latin America economy developed as the production of goods commenced. Latin American became “reintegrated into the world economy in the years after 1870, thanks to the rise in the demand for Latin America’s raw materials by the rapidly industrializing nations of Europe and the United States.” By the reintegration into the world of economy, Latin America started importing finished goods and exporting raw materials. All this was possible by the technology, capital and markets provided by industrialization nation.

Amid chaotic and drastic changes within Latin America, there is one country whose economy’s improvement has outshone the rest. According to a recent interview by CNN to the current vice president at Council of the Americas, it was possible to know that “Peru is currently Latin America’s fastest growing country”. Additionally, drastic reforms and innovative policies have fostered an environment that favours economic development. Although there is a lot left to do regarding public investment, the country has experienced drastic growth and several changes during the past years. Currently, the new president and the newest reforms have influenced the government and now the country is focusing on exporting processed goods instead of raw materials.

After WWII the United States had replaced Europe as the ideal model for Progress. The media glorified what living in the US would be like; having a refrigerator, and a car. This became increasingly unrealistic especially when Latin Americans could barely afford to dream of having a refrigerator, let alone a car. To Latin America being next to a newly developed superpower has starting to have its downsides, especially after the US announced the Marshall Plan. The Marshall Plan spent a large amount of funds to Europe to help rebuild after the devastating war, although Latin America was allied with the US, they had only received two percent between 1946 and 1959.

Implementation of the theory of comparative advantage led to a contraction of certain manufacturing industries in America and led trade to take place instead. With the rise of globalization,

Intuitively, countries that adopt ELI need markets to which they can export. Import substitution industrialization, which focuses on domestic industrial production, has less of an emphasis on creating goods for the international market. In contrast, countries that follow an export-led industrialization strategy, by the very nature of ELI, must find markets to which they can export their goods. In the absence of sufficient demand, ELI strategies fail. Put positively, ELI strategies require sufficient demand for the goods of the country in question. Where, then, does demand come from? This is a particularly vexing problem. It seems a reasonable intuition that developing countries would not, prima facie, produce goods of sufficient quality that external, developed markets would demand. Moreover, only developed markets would be worthwhile targets for exports; exports to developing markets would not provide sufficient capital flows to fuel transformation into a developed country. In other words, embarking upon an ELI strategy is a fundamental catch-22. A solution to this problem of demand is the presence of not only a willing market for the developing country’s goods, but also a market that is willing to make investments of capital and technology into that developing country. Doing so would enable domestic firms to develop their industry to levels of quality and

Galeano portrays this moment in Latin American history as the instant U.S investors took control over the industries. He details the dangers they went through when producing one item to export for the benefit of foreigners, and how they later imported the processed goods from those same foreign countries, injecting money only overseas. The fact that Latin America needed imports to survive initiated the imperial link the U.S has upon it. As stated by Galeano, “The growing dependence on foreign supplies produces the growing identification of the interest of U.S. capitalists operating in Latin America with U.S. national security”11, bluntly showing the relationship between the United States and Latin America. “With petroleum, as with coffee or meat, rich countries profit more from the work of consuming it than do poor countries from the work of producing it”12. Because profit was not being retained in the Latin American countries, nationalization of the industries became of importance. The United States offered intervention in order to protect everyone’s interests with the proposal of free trade, but this was no more than another manipulation to continue having power over Latin America and its resources: “Latin America’s big ports, through which the wealth of its soil and subsoil passed en route to distant centers of power, were being built as instruments of the conquest and domination of the countries to which they belonged, and as conduits

Aumentar el volumen de producción y venta, y crecimiento: Cemex tenía necesidad de expandirse globalmente, dado que su mercado doméstico en México es relativamente pequeño y que en 1989, la empresa ya dominaba 2/3 de la capacidad productiva donde le quedaba poco espacio para crecer . Además, la entrada de Holderbank en México al principio de los 90`s le generaba una fuerte presión competitiva, siendo que esa empresa ya tenía una presencia global importante.

After the end of the World War II the world faced the challenges of economic and social recovery. The majority of developing countries based their economies on Import Substitution Industrialization (ISI), the state-oriented approach to a trade and economic policy. ISI supports the replacement of import with domestic production in order to reduce foreign dependency. This protectionist policy dominated in developing countries, especially in Latin America and sub-Saharan Africa, during the first 30 years after the World War II. By 1980s, when the main gains of ISI were exhausted and it demonstrated its inefficiency, the countries of East Asia adopted a new development strategy. Consequently, this new export-oriented and market-friendly strategy, so-called East Asian model, has determined the successful economic and trade policy of East Asian countries during the next several decades. To understand the reasons of the shift from ISI to the East Asian model, it is needed to carefully examine and contrast these two approaches and their supporting theories.

Around the 1930s, Brazil and Latin American began following the process of Import Substitution Industrialization, which lasted until the end of the 1980s. The ISI policies devaluated the currency in order to boost exports and discourage imports, followed by adopting different exchange rates for goods (Watkins). ISI in Brazil had an interesting effect; it created a three-prong system of governmental, private, and foreign capital being directed at the infrastructure and heavy industry, manufacturing goods, and the production of durable goods. The program worked at first but then became a serious economic problem. When the 1980s came around Brazil realized that ISI policies lead to inefficient industries because of their lack of exposure to