Import Substitution Industrialization And The East Asian Model

This case focuses on Brazil's development strategy since World War II and on the change of the economic model following the debt crisis of the 1980s. At the time of the case Brazilian officials are deciding whether regional integration or globalization offer the best route to economic prosperity and development. This case illustrates the challenges that developing countries face in defining trade policy. It also introduces the role of regional trade blocks as an alternative to globalization. At the current time regionalism seems to be very much in vogue and seems to be much more likely to be the basis for future trade system changes than comprehensive trade treaties.

In the current international economic system, the behaviors and interactions of emerging states indicate that the previous norms of an open, global, and liberal international economy are being replaced with their own interests, which Stewart Patrick as well as Andrew Nathan and Andrew Scobell examine in their articles.

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

Globalization over the past twenty has become an issue in many countries. This industrialization of second and third world countries by Western Civilization creates many opportunities for the inhabitants. Not only does it expand trading markets, but also promotes productivity and efficiency; thus improving the country and integrating it into the industrial world. This process not only benefits third world counties, but also industrialized nations by allowing them to export goods to the developing world and increase their profit margin.

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

Prior to analyzing the ISI (Import Substitution Industrialization) model, it’s benefits as well as its shortcomings, a small introduction of how it came to be and why must be provided. As a product of the 1930s economic crisis and wear and tear of the liberal model, ISI appears in Latin America as another economic option, proposed by ECLA (Economic Commission for Latin America, dependent of the UN) as a means of bringing Latin America out of stagnation and work towards industrialization to eliminate its dependency on agriculture which was seen as vulnerable.

The post war economy left many nations across the world severely affected. The economies of Europe, Asia, and the Middle East demanded new materials as the post war era of reconstruction began to shape modern economic thought. This lead to a rapid embrace of Keynesian, or centrally planned economic theories, to encourage the recovery of nations devastated, as well as the growth of nations that were not at that point considered amongst the “developed world”. This radical notion of central planning resulted in many nations expanding the traditional role of government in the context of the economy. This shift in dynamic and approach to economic thought was felt especially in the fledgling Latin American economies. Out of this thinking, a radical approach to increase the self sufficiency of these Latin American countries was embarked upon. The concept of Import Substitution Industrialization was pioneered to assist the Latin American countries into formulating an economy that can compete and build a better society for the citizens of their countries. The economic concept revolves around the idea of enhancing the local production of a nation, and to eventually have the nation begin to rely less on imported goods from other nations(1). This internal market enhances the production and growth of a nation’s local economy, giving jobs and sustainability to that nation while increasing the nation’s dependence upon itself rather than a foreign power. Through emphasizing industrial

The unprecedented economic progress of a handful of East Asian economies were able to achieve in three decades, from1960’s to the 1980’s sparked the curiosity of the world as to how such an astounding feat occurred. After the Second World War, countries from both East Asia and Latin America began to industrialize and competed vigorously in the world market, however it is worthy to note that Latin American had several advantages from the very beginning. These include higher per capita income, higher level of industrialization, higher saving rates, higher education levels. Many of these East Asian countries/regions have just gained their independence (South Korea, Taiwan, Singapore, Malaysia, and Indonesia) and are recovering from war, in particular Japan and South Korea. Yet in the 1980’s East Asian economies developed at a much faster pace while economic growth in Latin America was stagnant and failed to live up to its potential. This paper will address the differences in economic strategies employed, explore why Latin America failed while East Asian economies achieved remarkable progress, and if there are any worthwhile lessons that current emerging economies can if possible emulate the kind of success achieved by newly industrialized countries (NICs).

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.

In this essay we look in-depth on how government strategies and economic policy play a crucial role in the success of High Performance Asian Economies (HPAEs) during 1960 to 1990 (World Bank 1993).There are eight countries within HPAEs: South Korea, Taiwan, Hong Kong, Singapore, Thailand, Malaysia, Indonesia and Japan. Its economic development has significantly rise that it was name ‘East Asia Miracle’ (World Bank, 1993).

The term developmental state has been widely utilised to describe any state experiencing a period of economic development and improvement in living standards (Pham, 2012). One of the most significant arguments in this scope is the performance of developmental state model. A number of scholars have attempted to investigate this issue and arguments can be divided into three categories. Proponents of state intervention indicate that the state plays an indispensable role in directing economic development and utilising the resources of the country to achieve development goals. On the contrary, those who oppose state-led model argue

Although it is right that globalization promotes free trade among the states and unites them, but there are also negative outcomes, which states whether rich or poor try to protect their own interests? These negative outcomes of globalization have made the dependency theory significant in describing the state of affairs in the present world. Poor countries attempt to protect their national markets and become self-reliant (Hewison, 1999). Self-reliance can be seen as supporting a strategy of controlled relations with the world economy. Poor nations should only approve relations on the condition that the relations will enhance the societal and financial well being of the larger population. However, endeavour by the peripheral states to oppose the impact of dependency can result in results in financial sanctions and/or military attack (Sen, 2010). One example of such resentment against globalization is “localism“that surfaced during the financial crisis in Thailand (Hewison, 1999). Localism is an illustration of populist response to the changes and disparities created by globalization. Localism gained substantial energy from the Thai King’s speech in 1997, where he recommended a self-contained economy to counter the negative effects

Improving the value of exports is the primary goal of Thailand’s international trade policy. The Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) was established as an effective cooperative strategy for gaining market advantages through regional market integration. Thailand aims to capitalize on trade agreements by networking and entering partnership with neighboring countries. Currently, Thailand’s cross-border trade in the Greater Mekong Subregion (GMS) plays a crucial role in globalization, because it facilitates rapid and convenient trade and investment. Countries seek new export markets to disperse the risk of domestic market concentration, as evidenced by the economic recessions affecting

Trade Policy basically characterizes objectives, values, guidelines and directions which relates to interchange relations between nations. As their goal is to help the country’s international trade the policies are particular to every nation and are defined by its public authorities. Taxes imposed on import and export, assessment of rules and regulations, and duties and shares are incorporated in nation 's exchange policy (Economy Watch, 2010).

This part explains the centralized policies with focus on the state capacities, which is the vital factor of developmental states model, and emphasizes on implications of the centralization for resource-rich developmental states. The initial stage of the extractive industry demands the centralization in which the government exerts the strong state capacities, such as abilities to autonomously have its policy ownership (e.g. design and implement industrial policies), to efficiently mobilize resources and to rationally allocate revenues from the resources to more productive sectors in a given society (Arellano-Yanguas and Mejía-Acosta, 2014). Such a state-led development often results from political leadership based on a strong ideology called ‘developmentalism’ and requires the trained and efficient bureaucracy to devise national development schemes and implement relevant legal frameworks (Reinert, 2010).