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.
There are two critical ways in which this model must be examined, theoretically as well as its concrete outcomes and policy implications within Latin American states. By looking at
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Therefore, it was believed that “Latin America instead of following outward-looking development path should instead pursue an ISI policy as the centre-piece for a new inward-directed development strategy” (Kay 5), following the beginning footsteps of the developed states.
Although its main goal was to strengthen the national economy to better compete in the global market, ISI has had very controversial results. Positively speaking, it has resulted in a decrease in imports, which has favoured certain national industries such as electric materials for construction, textiles, chemicals, etc., the nationalization of natural resources, betterment of term of trade, state intervention in economics (which led to the development of education, health and employment), strengthening of social organizations, but most importantly, the consolidation of the middle class. On a negative note, these nations led to become greatly dependent on technology, there was an increase of external capital control over developed areas, an under qualified labour force for factory jobs, increase in prices of manufactured goods and inflation, migration from rural to urban areas and as a result an increase in social problems, and finally, the industrial sector did not bother to conquer external markets which essentially contradicted the whole purpose of ISI. For these reasons ISI was seen as a
Latin America is filled with countries that have such great richness in environmental, agricultural and cultural goods but unfortunately it is also the place where the majority of the countries have high levels of poverty and social inequalities. Latin America is the place where we find many natural wonders like the Amazon rainforest, the Andes, the Iguazu Falls and many other natural resources. However, the economic situation is one of the poorest in the world. According to the article, The Politics of Economic adjustment policy in Argentina, Brazil, and Mexico: Experiences in the 1980’s and challenges for the future, Latin American countries underwent the worst economic recession during the 1980’s. The distribution of incomes after the
* The import substitution was aimed at replacing imports from abroad, but nevertheless in most Latin American countries the import of manufactured goods in fact increased. The terms of trade got worse, caused by low prices for exported raw materials and expensive imports. The industrialisation could not keep up with the technical and innovative development of the free world markets. As a result, new technologies and machinery had to be
Many authors highlight the increase in trade between China and Latin American states (Dosch & Goodman, 2012, Hardy, 2013, Nacht, 2012), driven by China’s need for raw material, which is supplied by many South American countries. Since the price of these products has increased due to the great demand from the Asian dragon, the countries of the Latin American region have profited from this trend (Hardy, 2013, p. ), enhancing thus their economic development (De Santibañes, 2009, Sanz, 2013) and making them less dependent on the United States (De Santibañes, 2009, p.18). As a new global player, has China come to fill the space formerly occupied by the United States and the institutions of the Washington Consensus in the countries of the Latin America Southern Cone? Is the Dragon displacing the Eagle in the region?
Following structuralist theory, policymakers developed a strategy based on the idea that Latin American countries would not be able to achieve levels of development if they remained tied to external sources. The implementation of structuralist economic policies caused Latin American economists and politicians to focus on industrialization as their top priority. Instead of specializing on the production of goods in which they had a particular advantage, Latin America turned towards import-substitution industrialization policies so that their developing economies would increase self-sufficiency and decrease their dependency on ‘already industrialized countries.’ The conjunction of ISI policies and structuralist theories were a rational response to Latin America’s situation during the mid twentieth century. This paper backs up the idea of ISI policies being a suboptimal solution when
Latin America has not developed economically or culturally like many industrialized countries such as United States or Canada have. Many historians attribute the cause to modernization theory or dependency theory. Modernization theory as a ‘traditional’ country that have not been able to progress from traditional to modern, but are capable to become modern with assistance (class notes September 11, 2017). Dependency theory is when economically impoverished Latin America’s resources are exported to wealthy countries to enrich them even more (class notes September 11, 2017).This essay will look at how modernization theory and dependency theory have affected Latin America’s growth from the Wars of Independence to the 1960s revolutionary
The prospect of achieving Mercosur’s progressive new vision is fraught with challenges as much as it is inspired by hope. United States interests will continue to resist losing their economic and political grip in the region. This will not be the only obstacle facing the success of this new vision. The sheer magnitude of the project will require a serious commitment, and Latin America’s diversity of political beliefs and cultures could prove to be more marked than its homogeneity.
How come Latin America and the Caribbean countries reverse the discourse, after decades of opposition to expansive trade ties with the United States? In most cases, the reversal was caused by a mass wave of in national economic policies and development strategies due to the failure of development from the 1960’s and 1970’s, the give way of debt finance due to the Latin American debt crisis of the 1980s, and the pressures originating from the advance of globalization. The work initiated by Mexico leaders would go on to pressure many Caribbean and Latin American countries into wanting to join trade ties after the intiation of the North American Free Trade Agreement.
On August 2004, the United States signed the Central America Free Trade Agreement with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. CAFTA is the first free trade agreement of its kind given that it is between the United States and smaller developing countries. The agreement encourages economic cooperation among these nations resulting in a stronger regional integration and contributing to greater stability. Beginning with a brief overview about the history of CAFTA, in this paper I will discuss the main issues being debated on CAFTA and analyze the effect it will have on US industries, specifically on sugar, textiles, and agriculture, as well as the benefits to the Central American countries involved in the agreement.
Within the last 20 years many Latin American nations have changed course from a neoliberal polity to one that is sided more to the left wing spectrum. “A significant part of Latin America is governed today by political movements and governments that call themselves ‘leftist’ or are classified as such by external observers.” (Luna) Furthermore, the shift in direction politically has been classified by 3 factors; “1) opposing incumbents by mobilizing economic and political discontent; 2) being able to bring together a broad, socially heterogeneous electoral constituency in the context of fragmented societies; and 3) having a charismatic leader who was able to achieve 2 by pursuing 1.” (Luna)
This paper will aim to examine the effect of the engagement in preferential trade arrangement on the trade of Paraguay. Preferential trade agreements (PTAs) have become a prevalent tool for regional economic collaboration. Despite its recognition and popularity, however, many economists are still skeptical of the effectiveness of PTAs. Preferential trade agreements (PTAs) are critical parts of the world’s current multidimensional trading system. The agreements allow nations to engage in regional or exclusive free trade cooperation. When countries are engaged in a PTA, they jointly allow preferential access on goods and services under the agreement to each other. PTAs introduce a new aspect of international trade for World
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
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), a 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, the 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 necessary to carefully examine and contrast these two approaches and their supporting theories.
For many nations with weaker economic systems, Foreign Direct Investment can seem like a daunting, and perhaps even unnecessary facet of day-to-day economic happenings. In the face of decolonization in the 1960s, many formerly colonized nations subscribed to two separate economic models: Import-Substituting Industrialization (ISI) or Export-Oriented Industrialization (EOI). Import-Substituting Industrialization relies upon heavy taxation of agriculture, and a movement towards autarky that hinges on the production of everything that may be imported within the nation. The thinking behind ISI suggests that government investment into all industries of a developing nation
Different views on development that are seen today are based on the previous lessons learned from strategies used in the past. Protectionism was a strategy used in the past where countries created steep barriers for imports from other countries. They used this strategy to help protect their starting industries. Countries didn’t open up international market competition until they were sure they were ready to compete profitably against them. This strategy worked successfully for the United States, Germany, and Japan. In the second half of the twentieth century, modern day strategies for development were of influence. Dominant strategies for development used today are import substitution, state socialism, and
Later that year, Brazil saw a brisk rise in inflation and a slow growth of domestic market. This led Brazil to a balance of payment shortcoming since there were more import goods rather than exports. Because of this flaw, there have been a lot of government’s intervention in the market. But such intervention could not fix the failure in the market and the import goods were still exceeding. This period of industrialization in Brazil is viewed as the background of the later decline of its regular commodities exports. Within the similar period, India also adopted the substitution industrialization policy.