Question

What are Import-Substitution Industrialization (ISI) and Export-Oriented Industrialization (EOI)? Why do countries place such importance on industrializing? What are the main instruments and institutions that characterize each approach? What are their main differences? In what regions of the world were each primarily implemented? How does each approach shape the interests of domestic firms and institutions? Which has proven to be more successful?

Answer 1

Import substitution industrialization (ISI) is a trade and economic policy which advocates domestic goods and services over foreign imports. It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. This policy has been widely adopted by the People’s Republic of China which has developed an extensive network of technology and assembly line factories to multiply the production and market for its domestic goods.

In contrast to this is the Export-oriented industrialization (EOI) which is a trade and economic policy marked by the goal to expand the industrialization process of a country by exporting goods for which the nation has a comparative advantage. This is achieved by opening domestic markets to foreign competition in exchange for market access in other countries. The specific policies which achieve this include Reduced tariff barriers and extended government support to export industries. Export-oriented industrialization was characteristic of the development of Hong Kong, South Korea, Taiwan, and Singapore in the late 1990s.

A comparison of the costs and benefits of the two trade orientations shows that export-led growth may be more suitable to the global trends as it improves the country's foreign-currency finances, as well as help the country surpass its debts by ensuring a continuous productivity through the materials which are meant for the exports.