import substitution

Import Substitution Development Strategy

A development strategy whereby a government restricts or forbids the import of industrial material and subsidizes local material. For example, a country may not allow the import of refined oil and instead encourage development of local oil refineries. The idea behind this strategy is to make a less developed country less dependent on international assistance and foreign direct investment until such time as it is can absorb investment more easily and also trade its own products. This development strategy was followed in Latin America and some other regions for most of the mid and late 20th century. It has its theoretical foundations in Keynesian economics, though some analysts have claimed that each nation industrializing after the United Kingdom has followed some form of import substitution.

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import substitution

a strategy aimed at reducing IMPORTS in order to encourage the production of domestic substitutes. Import substitution is pursued in particular by DEVELOPING COUNTRIES as a means of promoting domestic INDUSTRIALIZATION and conserving scarce FOREIGN CURRENCY resources. By limiting or removing competing IMPORTS through the use of QUOTAS, TARIFFS, etc., the country aims to establish its own manufacturing industries which, initially, can be expanded to cater for the domestic market, and at a later stage develop an EXPORT trade. See INFANT INDUSTRY, ECONOMIC DEVELOPMENT.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005