The rise and fall of import substitution

Abstract

• In the 1950s, many economists encouraged developing countries to adopt a trade strategy based on import substitution. • Yet Raul Prebisch and other proponents were actually surprisingly caution in their support for import substitution. • Prebisch and others were also among the first to recognize the shortcomings of import substitution in practice. • By the late 1960s, the problems with import substitution were increasingly apparent and few economists were advocates. In the 1950s, many economists believed that import substitution – policies to restrict imports of manufactured goods – was the best trade strategy to promote industrialization and economic growth in developing countries. By the mid-1960s, there was widespread disenchantment with the results of such policies, even among its proponents. This paper traces the rise and fall of import substitution as a development idea. Perhaps surprisingly, early advocates of import substitution were quite cautious in their support for the policy and were also among the first to question it based on evidence derived from country experiences.