What Is an Import Substitution Industrialization?

Import substitution is the tendency of developing countries to adopt strict restrictions on imports, such as tariffs, quotas, and foreign exchange control, to support and protect the development of relevant domestic industrial sectors. Select products with high import demand as the focus of national industrial development, and strive to gradually replace imports with domestic production, thereby driving economic growth, realizing industrialization, correcting trade deficits, and balancing international balance of payments.

Import substitution

This entry lacks an information bar . Supplementing related content makes the entry more complete and can be quickly upgraded. Hurry up!

Import substitution is the tendency of developing countries to adopt strict restrictions on imports, such as tariffs, quotas, and foreign exchange control, to support and protect the development of relevant domestic industrial sectors. Select products with high import demand as the focus of national industrial development, and strive to gradually replace imports with domestic production, thereby driving economic growth, realizing industrialization, correcting trade deficits, and balancing international balance of payments.

One of the most obvious facts about China's import substitution processing base: At the same level of per capita production, the smaller a country is, the more its foreign trade depends on

Import substitution

Existence is bound to be higher. The size of a country like Germany's total foreign trade accounts for more than 50% of GDP, but trade with EU countries accounts for more than 50% of the total foreign trade. In this way, if the EU s trade with non-EU accounts for the total EU s GDP, the dependence on foreign trade will fall to only over 20%. This fact indicates that the smaller a country is, the higher its economic dependence on the outside world, the more its economy is outward-oriented, and the more efficient its export-oriented economic development is. However, this fact in turn shows that small countries and regions such as the "East Asian Dragons" can complete economic development through exports, but the entire China may not be able to achieve high-speed economic development by the same method.

In fact, the larger a country is, the more introverted it is when it completes industrialization. The extent of the outward-looking economy of the United Kingdom during the Industrial Revolution was higher than that of the United States when it surpassed the United Kingdom at the end of the 19th century. The reason was that the United States was much larger than the United Kingdom. The United States is still one of the countries with the lowest dependence on foreign trade among developed countries. The ratio of US foreign trade to GDP has increased greatly in the past 20 years, but now this rate is only about 25%.

More importantly, the success of Japan and Asia's "four little dragons" in driving economic growth through exports has largely depended on the special international economic environment in the first decades after the war. At the end of the Second World War, Western countries reached a consensus to liberalize international trade, and countries greatly reduced trade barriers with each other. This policy of trade liberalization has led to a sharp increase in international trade, which has grown much faster than the world economic growth rate in 25 years. Before the 1980s, Keynesian macroeconomic policies were generally implemented in Western countries, and the total demand of the entire world economy was relatively sufficient. In this international environment, it is easier for lagging countries to increase exports, and export-led economic growth has a considerable advantage over import substitution strategies. Times have changed, and the international economic environment has changed significantly from then. The trade barriers of developed countries are now quite low, and there is not much room for reduction. The cutting edge of trade barriers is directed at developing countries. Western economic powers are trapped by severe fiscal and social spending deficits, and they are afraid of causing inflation, so they are afraid to take effective policy measures to expand aggregate demand. Both of these factors have eliminated the international environment in which developing countries can easily and dramatically increase exports. The export-oriented economic growth strategy has fallen into crisis, which is actually the deepest cause of the East Asian financial crisis.

Compared to export-oriented strategies, the benefits of import substitution now are definitely greater than in the past. While a country as large as China currently enjoys good economic development through export orientation, products that cannot substitute for imports at home obviously have less export competitiveness to developed countries, which means that import substitution is in line with To a certain extent, they are complementary. In such an environment, the timely development strategy of partial import substitution is timely.