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Economic Development of Central America Econ. 4200 - Spring 2004 – Dr. Taylor - page 21 / 153





21 / 153

5. Import oriented trade policy & development strategy:

The substitution of domestic production for imports of foreign manufactures.

Was first explored by Latin American countries when their primary exports markets were severely disrupted, first by the Great Depression of the 1930s and subsequently by the breakdown of commercial shipping during World War II. Deteriorating terms of trade for primary products hurt LA economies.


Emerging from the war with fledgling industries, countries like Argentina, Brazil, Columbia, and Mexico began systematically to sustain these manufactures by erecting tariffs and other barriers to trade-competing imports from the US.


Latin America developed import substitution regimes with a multitude of protective   techniques that were later emulated by other developing countries.

Raul Prebish: Argentine economist … developed theory to support.

… Conditions for success:

(1) Identify large domestic markets, as indicated by substantial imports over the years.

(2) Ensure that the technologies of production can be mastered by local manufacturers or that foreign investors are willing to supply technology, management, and capital.

(3) Erect protective barriers - Either tariffs or quotas on imports, to overcome the probably high initial cost of local production and make it profitable for potential investors in the target industries (“infant” industry argument).

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