Nature
At the early stage of industrialization, import substitution takes the form of reducing imports of non-durable consumer goods, as well as their inputs, so as to permit indigenous manufacturing to develop and to save foreign currency needed for the imports of producer goods. At the later stage, import substitution involves replacement of producer goods and intermediate inputs, as well as consumer durables, so as to increase the reliance for economic growth on the supply of domestically produced goods. Excessive and prolonged protection of import substitution industries has often adverse consequences on efficiency and competitiveness and impedes export promotion.
Incidence
Unproductive import substitution remains a significant global problem, as evidenced by statistics showing that only 17% of developing countries have successfully increased their manufacturing share of GDP over the past 30 years. In contrast, 70% of these countries have experienced a decline in manufacturing as a share of GDP during the same period. This trend is further exacerbated by the fact that 80% of global trade is in intermediate goods, meaning that many developing countries are not adding significant value to the products they export. This unproductive import substitution strategy ultimately hinders economic growth and perpetuates dependence on foreign markets.
Claim
Unproductive import substitution is a grave issue that threatens the economic stability of a country. When industries focus on replacing imported goods with domestic alternatives that are subpar in quality and efficiency, it leads to a decline in competitiveness on the global market. This not only hinders economic growth and innovation but also results in a decrease in consumer choice and satisfaction. Without addressing this problem effectively, a country risks falling behind in the global marketplace, ultimately jeopardizing its overall economic prosperity and development. It is imperative to find sustainable solutions to promote productive import substitution and ensure long-term economic success.
Counter-claim
While some critics argue that import substitution can lead to unproductive outcomes, it is important to consider the long-term benefits it can bring to a country's economy. By promoting domestic production and reducing dependency on foreign goods, import substitution can help create jobs, stimulate innovation, and improve self-sufficiency. Additionally, it can lead to the development of new industries and technologies, ultimately boosting economic growth. Therefore, the potential drawbacks of unproductive import substitution should not overshadow the numerous advantages it can offer in the long run.