Essay subjects macroeconomics 2 comparing two economic development paths based on import substitution industrialization (isi) in latin american

HO CHI MINH UNIVERSITY OF BANKING ESSAY SUBJECTS MACROECONOMICS 2 COMPARING TWO ECONOMIC DEVELOPMENT PATHS BASED ON IMPORT SUBSTITUTION INDUSTRIALIZATION ISD IN LATIN AMERICAN COUNTRI

HO CHI MINH UNIVERSITY OF BANKING

ESSAY SUBJECTS MACROECONOMICS 2

COMPARING TWO ECONOMIC DEVELOPMENT PATHS

BASED ON IMPORT SUBSTITUTION INDUSTRIALIZATION (ISD IN LATIN AMERICAN

COUNTRIES AND EXPORT-ORIENTED INDUSTRIALIZATION (EOI) IN EAST ASIAN COUNTRIES

AND DRAWING SOME LESSONS FOR VIETNAM

GROUP 11

TP Hồ Chí Minh, tháng 7 năm 2024

LIST OF TABLES wooo -“43 LIST OF FIGURES

1 Theoretical Basis of Import Substitution Industrialization (ISI) & Export-

Oriented Industrialization (EOI)

1.1 Import Substitution Industrialization (ISI)

1.2 Export-Oriented Industrialization (EOI)

2 Economic development situation in East Asian and Latin American countries

2.1 General overview of the economy in East Asian countries

2.2 General overview of the economy in Latin American countries

3 IS] Strategy in Latin American Countries and EOI in East Asian Countries

3.1 ISI in Latin American countries

3.1.1 Some of the achievements that Latin American countries have achieved

by adopting the IŠÌ stratey 0 2011211222122 1 1911211111111 103 2111222112 rray 15

3.1.2 Some limitations of the ISI strategy in Latin American countr1es 22

3.2 EOI in East Asian countries

3.2.1 Some achievements of East Asian countries when applying EOI 26

3.2.2 Some limitations of EOI strategy in East ÀsIan counfr1es - 38

3.3 The Relationship Between IS] in Latin American Countries and OEI in East

CONCLUSION

REFERENCE

Table 3.1 Impact of the ISI on the performance of the regional economy and the Latin American economy a8 a wholÌe - 1 2 122011120111 1111121 1111111111111 1 222 15 Table 3.2 GDP per capita in Latin America and Asia (1990 international dollars) 16 Table 3.3 Actual growth rate by sector and growth rate of gross domestic product E813) 110§189á9501100A8NHHí( (ớÁÁaÀớÚccẳỶẳâiôỶÃỶẼỶÝỶÃÝÃẼÃÝẢ 23

Table 3.4 Import of goods and services by Latin American countr1es 24

Table 3.5 Changes in the structure of Japan's material production industry (%) 29

Table 3.6 Japan's technical export - import situation in the period 1955-1974 30

Table 3.7 Value of export and import of goods and services, trade balance of Japan, period 2000-2020 (Unrt: billion USD) 2 2 22120112112 21 1211 121121111111 112211 H re 32

Table 3.8 Changes in the economic structure of Korea during the period 1976 -

Figure 2 1 Ohno’s stages of catch-up Industr1alIzation -:- 22c ccsxcscss2 6

Figure 3 1 Changes in the Korean economic structure and growth rate in the

period 2016-2021 (unit %) 37

INTRODUCTION Industrialization is one of the most important tasks in the development process, as it brings both material production and the socio-cultural life of the country to a new level In each historical period, based on the socio-economic situation, industrialization has specific and appropriate content and steps In

particular, import substitution industrialization (ISI) in Latin American countries

and export-oriented industnialization (EOI) in East Asian countries have brought

about many changes for these countries, marking an important new turning point in

the industrialization of the global economy Thanks to the successful

implementation of the export-oriented industrialization (EOI) model, East Asian

countries achieved great economic growth In contrast, Latin American countries, when embarking on economic development towards import substitution industnialization (ISI), faced a public debt crisis in the 1980s Although import

substitution industrialization and export-onented tndustrialization have brought

about significant achievements for countries, these two strategies also have many

limitations and shortcomings Therefore, to achieve the optimal efficiency of each

strategy, the requirement for East Asian and Latin American countries 1s to have appropriate policies and solutions This will also provide valuable lessons for industnializing countries

For Vietnam, when officially entering the transition period to socialism, from

a centralized economy to a market economy open to international integration, the

Party pursued a policy of socialist industnialization, and from the late 20th century

to the present, this process has been fully identified as industrialization and

modernization This is a comprehensive and broad process in terms of economics,

technology, and socio-economics, aimed at transforming Vietnam from a backward agricultural level to an industrial level with increasingly advanced, modern, and civilized technology Vietnam has clearly recognized the importance of export- oriented industrialization - a strategy that has brought many achievements to East Asian countries To date, after implementing mnovation, reform, and opening up,

focusing on both import substitution and export orientation, the country's economy

has undergone many positive changes, but there are still many challenges Therefore, to further research the development strategies based on "Import Substitution Industrialization (ISI)" in Latin American countries and “Export- Oriented Industrialization (EOI)" in East Asian countries, as well as to draw valuable lessons for the Vietnamese economy, the group has chosen the topic

"Comparing two economic development paths based on "Import Substitution Industrialization (ISI)" in Latin American countries and "Export-Oriented

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Industrialization (EOI)" in East Asian countries and drawing some lessons for Vietnam"

1 Theoretical Basis of Import Substitution Industrialization (151 & Export-Oriented Industrialization (EOD

1.1 Import Substitution Industrialization (ISI) Concept: Import Substitution Industrialization (ISI) 1s an economic development strategy that focuses on producing domestically goods that were previously imported, with the aim of reducing dependence on external markets and

promoting the growth of the domestic economy This strategy is often applied in

developing countries with large domestic markets and high potential for industrial development

Theoretical Basis: The theory of import substitution industrialization (ISI) is built on the foundation of a number of specific economic development policies This theoretical framework includes arguments about infant industry, the Singer- Prebisch thesis, and Keynesian economics Based on these economic perspectives, several key activities can be implemented:

- Establish a subsidized industrial policy: The government will provide

financial support to new industries through forms such as subsidies, tax

breaks, and low-interest loans The goal is to help these industries develop and become competitive in the international market

- Organize the production of strategic substitutes: The government will focus on developing industries that produce substitutes for imported goods

This helps reduce dependence on external markets and promote domestic production

- Apply trade barriers: The government can use measures such as high tariffs and import quotas to protect domestic industries from competition

from imported goods

- Control domestic prices: The government can intervene in the pricing of

domestic products to support domestic producers

- Restrict foreign direct investment (FDI): The government may restrict FDI

to protect domestic industries from competition from foreign companies Practical Example: In 1950, the Economic Commission for Latin America and the Caribbean (ECLAC) was established, with Raul Prebisch as its executive

secretary Prebisch outlined an explanation of Latin America's rapid development

transition from export-led growth to internally oriented urban industrial development This report became an official guide for import substitution industrialization

In response to Prebisch's call, most Latin American countries underwent some import substitution industrialization activities in the following years First, these

countries expanded the production of non-durable consumer goods such as food and beverages; then expanded to durable goods such as automobiles and appliances Some countries, such as Argentina, Brazil, and Mexico, even developed domestic

production of more advanced industrial products such as machinery, electronics, and aircraft

Despite its many successes, the implementation of import substitution

industrialization has led to high inflation and other economic problems As these

became more severe due to stagnation and the foreign debt crisis of the 1970s, many Latin American countries sought loans from the IMF and the World Bank; with the

insistence of these organizations, they had to abandon their import substitution

industrialization protectionist policies and open their markets to free trade

1.2 Export-Oriented Industrialization (EOI) Concept: Export-Oriented Industrialization (EOI) 1s an economic development strategy that focuses on producing goods for export, in order to take advantage of the country's comparative advantage in the international market and promote economic integration This strategy is often applied in countries with advantages in resources, labor, or production technology

Theoretical Basis: This theoretical framework is based on arguments about comparative advantage, neoclassical theory, and global value chain theory From these economic perspectives, several key activities can be implemented:

- Promote exports: The government will implement export promotion policies such as subsidies, tax cuts, marketing support, and product

promotion The goal is to enhance the competitiveness of domestic enterprises in the international market and increase the volume of exports

- Improve labor productivity: The government will invest in education,

training, and scientific research to improve the expertise and skills of the workforce This helps to increase labor productivity, reduce production costs, and enhance the competitiveness of businesses

- International economic integration: The government will participate in

free trade agreements and international economic organizations to expand

export markets for domestic enterprises International economic integration also helps to attract foreign investment and technology transfer

- Create a favorable business environment: The government will build an open, transparent, and competitive business environment to attract domestic

and foreign investment Improving the business environment also helps to

reduce business costs and improve the efficiency of businesses

- Infrastructure development: The government will invest in building infrastructure such as transportation, electricity, ports, and airports to support

umport-export activities and attract investment Infrastructure development

also helps to improve the efficiency of the economy

Example: Singapore has implemented the EOI strategy since the 1960s, focusing

on labor-intensive industries such as textiles and electronics Focus on developing

infrastructure, education, and training high-quality human resources Attract foreign

investment through preferential policies and an open business environment Today,

Singapore is a leading global financial, trade, and services center with the highest GDP per capita in Asia

2 Economic development situation in East Asian and Latin American countries

2.1 General overview of the economy in East Asian countries Over the past few decades, since the 1960s, Asia has undergone a period of strong development, especially East Asia, with development initially originating from Japan These countries have witnessed outstanding economic growth and impressive economic restructuring, thereby significantly impacting the pace of

global economic development Industrialization in East Asia has occurred at an

unprecedented pace, demonstrated by the success of the export-focused industnialization model This marked an important turning point in regional and

global economic history

In particular, the analysis of the export-oriented industrialization model shows that studying the economic practices of East Asia can provide solid

theoretical foundations for other Asian countries to apply to achieve their goals

Successfully implement sustainable industrialization strategy This is not just a temporary trend but also reflects a deep and sustainable economic structural transformation, bringing prosperity and economic stability to countries in the

region

To better understand these strategies, including export-oriented and import substitution, 1t is necessary to carefully examine the economies of two typical countries, Japan and South Korea Japan, as the first developed economy in East Asia, has paved the way for this wave of development By applying the export-

oriented industrialization model, Japan has achieved significant economic achievements and become a model for other countries in the region to follow

Japan's success is based not only on the development of key industries but also on the creation of a comprehensive and effective economic system Korea, following Japan's success, has also implemented a similar model and achieved impressive

results in the process of industrialization and economic development From a poor

country after the war, Korea quickly rose to become one of the world's leading economies This development is driven by an export-focused economic policy and strong investment in education, technology and infrastructure South Korea has successfully built large corporations, also known as chaebol, that play a key role in

the national economy and contribute to enhancing Korea's position in the

International arena

From practical examples of Japan and Korea, we can draw important lessons

about applying the export-oriented industrialization model This not only helps other East Asian countries but can also be a guide for developing countries around the world in planning and implementing effective and sustainable economic strategies Learning from these successes, countries can shape economic policies appropriate to their own conditions and potential, thereby achieving comprehensive and sustainable development in the future

Describing the development process of a country from an agricultural or simple manufacturing country to an industrial or developed country, according to

Kenichi Ohno, Professor at the National Institute for Policy Research of Japan, there is This development process can be visualized as a path consisting of stages as shown in Figure 2.1

Creativity

Stage four Technology

Stage three in innovation Management design as

foreign direct Have quality goods United States,

Stage one industries, but epuDiic

g still under of Korea, — Simple foreign Chinese Taipei

manufacturing guidance under foreign

Stage zero pittance: Thailand,

subsistence Viet Nam

Figure 2.1 Ohno’s stages of catch-up industrialization According to figure 2.1, in phase 1, foreign direct investment (FDI) increased sharply, production activities developed but important issues such as design, technology, production and marketing were all directed by In foreign countries, raw materials and important components of production must be imported

Domestic resources only provide industrial land and low-skilled labor but create

jobs for the poor In phase 2, the internal strength of the economy develops but basic production is still under foreign management and guidance When a country is able to localize skills and knowledge by developing domestic human resources to replace foreign workers at all stages of production like Korea and Taiwan are doing now, that is when they have achieved success Enter stage 3 Finally, when the economy creates the ability to create new products and global market trends like Japan, the US and some EU countries currently, that is when the economy has entered stage 4 When outlining the stages of this industrialization process, Kenichi Ohno also emphasized the fact that many countries cannot escape stages 1 and 2 to

move to stage 3 That is called the “middle income trap", envisioned as an "invisible

glass ceiling" that prevents economic development between phase 2 and phase 3 If

this barrier can be overcome, The economy will move from the stage of partial

dependence on external forces to completely relying on internal forces (Ohno,

2009)

Like the flock of swallows model, there is some degree of similarity in the

types of export industries in which countries specialize at comparable stages of development All countries are starting to focus on technologically simple labor- intensive goods - clothing, sporting goods, toys, prepared foods, etc Although the pace of transformation Changes from these fields vary, but the shift to a series of Items requiring more capital and more complex technology always follows This

common pattern of initial specialization in labor-intensive or resource-intensive activities 1s followed by a move up the ladder of comparative advantage that begins

a period of intensification of production domestically replaces imported goods,

when the relative resource base changes, and is ultimately oriented toward export Japanese economist Akamatsu has proposed a multi-country version to describe the catch-up of countries m the East Asian region with previous developed countries in the same region in a particular industry or group of industries goods after observing the development of East Asian countries

The unique industrialization phenomenon in East Asia is described as the flying swallow pattern Accordingly, the period from about 1960 to 1990 saw the

adoption of the export growth model by the first generation of NIEs - Japan and

then the second generation, Korea, Tatwan, Hong Kong and Singapore The

subsequent successful adoption followed by the third generation — Thailand,

Malaysia — and then China in the 1980s is considered a historical turning point

According to Akamatsu, when an industry in Japan is i the export stage,

countries such as Korea, Tatwan, Hong Kong, and Singapore import products of

that industry; When this industry in Japan gradually reduced exports when it

reached a certain export threshold, Korea, Tatwan, Hong Kong, and Singapore

began to produce and replace imported products When these countries move to the stage of boosting production and starting to export, Japan will stop exporting and lose its competitive advantage A country has many different industries, so when it loses its competitive advantage in one industry, that country will look for and switch to another industry (textiles to shipbuilding and passenger cars, to electronics and automobiles) high-end), from Japan to NICs and then to other countries Some economic scholars also use this version to describe the international division of labor in East Asia At a given time, Japan produces and exports the most advanced products, NICs produce and export average products, and latecomers produce and export simple products than

During the late 1940s and 1950s, countries in East Asia saw significant

growth in the building of their domestic industrial base after gaining independence This has led to the introduction of a series of industrialization policies aimed at promoting economic development and reducing dependence on imports In that context, East Asian countries have shifted from an import-based strategy to an import substitution strategy, aiming to create domestic resources and build domestic industry This marked an important turning point in the economic development of this region, with a focus on building production bases and improving competitiveness 1n the international market

During the period from the 1950s to the 1970s, developing countries

implemented industrialization strategies under the leadership of their leaders and

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with the support of trade policies such as "import substitution" password" During this period, industrialization became a priority, but this often required the import of capital goods from developed countries This poses a big challenge for developing countries in terms of access to resources and foreign currency issues Therefore,

"import substitution" policies are applied to minimize dependence on foreign resources and save foreign exchange In addition, the support of knowledge also

plays an important role in promoting industrialization Investment in education and

scientific research has created a highly qualified and creative workforce, thereby enhancing the competitiveness and sustainable development of industries in the region water Therefore, during this period, developing countries not only focus on building an industrial base but also on developing knowledge and innovation capacity

Some economies in Asia that are in the stage of development approach

export-oriented policies carefully, which is understandable because each country has its own starting point and pace of development In the 1960s, South Korea,

Singapore and Taiwan (China) focused on promoting outward-looking policies to create favorable conditions for the export of goods In the East Asia region,

although tariff barriers to the overall economy still exist, exporters can still access inputs and capital goods at world market prices The main reason for this is to create competitive conditions and attract investment capital from other countries, thereby promoting economic development This shows countries’ awareness of the importance of promoting exports in enhancing competitiveness and economic

development At the same time, the application of flexible and open policies also

helps create favorable conditions for the sustainable development of domestic

industries

In addition to promoting liberal tradeization, developing countries have also

begun to apply policies to improve the investment environment, in order to attract foreign direct investment (FDI) and multinational corporations country (MNC) Initially, most economies in Asia adopted restrictive policies on FDI However, with awareness of the importance of foreign investment capital for economic development, many countries have adjusted their policies to create more favorable

conditions for FDI Although some countries with large and valuable resource-

based industries have developed joint ventures and production sharing contracts This shows a shift from focusing on local resources to building strategic

partnerships with multinational corporations, helping to improve production

capacity and market competitiveness Global

During the period from 1970 to 1985, many developing countries began

implementing reforms to promote exports and reduce import barriers This emphasizes the transition from a closed economic model to a more open model,

aimed at creating favorable conditions for promoting trade and economic development In some countries, balance of payments shortfalls have led to the implementation of major adjustment and stabilization programs specific, these adjustment policies are often supported and sponsored by international organizations such as the International Monetary Fund (IMF) and the World Bank (WB) These measures often include exchange rate adjustments, financial reforms

and improved economic management, aimed at minimizing risks and enhancing

stability in the financial and economic systems of developing countries develop 2,2 General overview of the economy in Latin American countries Throughout the 20th century, Latin America underwent a tumultuous journey

of economic development, from strong free-market investment and comprehensive

integration into the world economy to transformation to a state-led economic model,

especially through the import substitution industrialization (ISI) strategy

During the early part of the century, Latin American countries strongly

promoted market opening and actively integrated into the global economy

However, with the onset of the Great Depression and World War I, they faced new challenges, including shortages of imported goods and negative trade balances This has prompted a shift to an ISI policy, whose primary objective is to strengthen domestic manufacturing capabilities and reduce dependence on imported goods

However, despite the initial successes of the ISI policy in promoting

economic and industrial development in the region, the 1980s saw a decline in the model A series of debt crises has spread across the region, laying the groundwork for intervention by international financial institutions such as the IMF Subsequent structural adjustment programs forced Latin American countries to abandon ISI policies and promote market openness and economic reform

Before 1930, Latin America witnessed a period of impressive growth, reflecting the region's conformity to neoclassical principles of comparative advantage and free trade From the late 19th century to the mid-20th century, the region took advantage of the benefits of outward growth and export development, especially of primary products, to create wealth and prosperity prosperity

The growth of the export industry in the region has been driven by a number

of important factors First, the reduction in transportation costs has facilitated international trade, helping Latin American goods reach more markets and compete

more strongly in the world market Second, a wave of foreign investment has

poured into this region, providing investment capital and advanced technology to

develop the economy and produce goods for export Finally, massive migration from Europe to Latin America, especially during the late 19th and early 20th centuries, brought abundant and high-quality labor, helping to raise productivity and labor productivity in industry and agriculture

From the 1930s to the 1980s, the era following the Great Depression and

World War II marked a period of remarkable transformation in Latin America's

economic history The decline in international trade and finance has caused the continent to lose foreign capital and face unfavorable terms of trade The consequence of these fluctuations was a decrease in trade volume and an increase In

foreign debt

In the context of important import shortages, economic recovery and

development become urgent and are carried out through promoting the import

substitution model During this time, the Import Substitution Industrialization Strategy (ISI) was shaped and considered a way out for Latin America Seen as an

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opportunity to increase economic independence, ISI is hoped to facilitate self- sufficiency in essential goods, thereby reducing dependence on world markets and

minimizing impacts impact of global volatility on the Latin American economy However, during implementation, ISI policies have faced many challenges

and limitations The promotion of domestic production often encounters problems related to product performance and quality, as well as a shortage of capital and new technology Furthermore, protecting the domestic market can also cause monopolies and reduce competition, while delaying productivity improvements and innovation 1n the manufacturing industry

According to Baer (1972), the policy tools applied by Latin America to

promote and strengthen the Import Substitution Industrialization Strategy (ISI) are

measures such as protective tariffs or exchange controls, Preferential import

exchange rates for industrial raw materials, cheap loans from government

development banks, as well as the construction of infrastructure specifically designed to support industries

ISI, according to Baer, was seen as a Latin American response to the volatile international environment from the 1930s to the 1980s Instead of relying on

imports and taking nsks from the world market, Latin American countries have chosen the path of self-sufficiency and domestic development This reflects the

necessity and adaptability of economic policies to each country's context, and their priority in creating stability and economic independence

However, it should be noted that these measures do not achieve their goals

easily Promoting domestic industrial development often faces challenges in performance and product quality, as well as shortages of capital and technology

Furthermore, the imposition of tariffs and import restrictions can also lead to monopolies and reduced competition, while slowing progress and innovation in

manufacturing

After World War II, countries around the world faced pressure to withdraw from international economic links, and Latin America was no exception to this trend However, thanks to its rich natural resources, the region has been able to develop domestic production capacity to replace imports from abroad This is an

important strategy to help Latin America reduce its dependence on international

economies

Abundant natural resources not only facilitate Latin American countries to focus on inward industrialization but also promote domestic economic development Countries in the region have invested heavily in manufacturing and processing industries, using available resources to produce substitute goods for those that previously had to be imported This will not only help improve the trade

balance but also create jobs and promote sustainable economic growth in the region

However, the abundance of natural resources has an undesirable

consequence: it makes Latin America tend to isolate itself and participate less in the global market Countries in the region focus too much on developing internal

resources and ignore opportunities for international economic integration Instead of seeking to take advantage of globalization and participate deeply in international

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trade networks, Latin America chose the path of independent development, relying

on domestic resources and production capabilities

This leads to a significant separation from global economic flows Although this strategy helps countries in the region develop their economies sustainably in the short term, in the long term it may reduce the ability of Latin American economies

to compete and adapt in the market International School Not participating deeply

in global trade also causes these countries to miss many opportunities for technological development, economic cooperation and access to international financial resources

Export using domestically produced goods in primary industries that are easy

to produce These goods are mainly produced by low-skilled labor and are labor intensive The transition to secondary ISI] requires greater investment in upskilling and training of the domestic workforce, with a view to transitioning to the production of higher value goods and the use of advanced technology up

This secondary ISI approach requires strong government intervention, through massive investments in human capital and physical infrastructure This process often leads to high public debt levels due to large investment costs The government plays a key role in promoting and supporting this industrialization

process, creating conditions for the economy to shift from unskilled labor-based

production to industries that require technology and technology high technology

The implementation of trade and financial liberalization policies in Latin

America has brought many opposing effects Commodity prices fell and borrowing from abroad became easier, helping to finance domestic consumption However, an

unintended consequence of this policy was a decline in domestic private savings

(Birdsall, N (1997) Pathways to Growth: Comparing East Asia and Latin America) The ability to borrow from abroad has created conditions for Latin American countries to boldly mvest in the secondary import substitution

industrialization strategy (secondary ISI) through borrowing capital at high interest

rates from outside, this makes them vulnerable to external economic shocks

This secondary ISI strategy promotes autonomous growth in the Latin American economy, encouraging the production of not only final goods but also intermediate and capital goods However, many economists believe that this strategy is not really beneficial for sustainable growth It prevents focusing on areas where countries can take advantage of comparative and absolute advantage, thereby

achieving the highest possible level of output

Furthermore, foreign borrowing not only reduced private savings but also led

to severe economic shocks in the decades that followed Specifically, the financial

crises of the 1970s and 1988 had a major impact on Latin American economies, due

to overreliance on foreign loans and lack of domestic financial stability

Reliance on foreign loans, combined with declining private savings, makes Latin America's economy vulnerable to global economic fluctuations As international financial conditions change, these countries face higher borrowing costs and difficulty maintaining economic stability As a result, although the import

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substitution industrialization strategy initially brought short-term gains, in the long term, it was unsustainable and created many risks for the regional economy

After the energy crisis, international creditors began to change their perception of financial risk due to fluctuations in interest rates and global trade terms Rising interest rates combined with adverse changes in international trade

have caused foreign capital flows to Latin America to be abruptly cut As a result, economies in the region face macroeconomic imbalances, leading to a major debt

crisis in Latin America

This crisis marks an important turning point in the economic policies of many countries in the region Previously, Latin American countries pursued strict protectionist policies, focusing on the import substitution industrialization (ISI) strategy However, the debt crisis forced them to abandon this protectionist policy

and implement deep structural economic reforms These reforms include trade

liberalization, financial reform, and increased investment in more competitive industries

This period, often called the "Lost Decade", saw a severe decline in

economic growth in Latin America Economic growth stagnated, and inflation

exploded to an annual average of about 75% for three decades until the 1990s Countries in the region faced high public debt, unemployment increased and people's living standards decreased This crisis has exposed the limitations of the ISI strategy and the unsustainability of protectionist-based economic policies

Although the ISI produced some positive results in its early years, with an average annual GDP growth rate of 7.4% in 1964 across Latin America (World Bank, 2019), the This achievement did not last Compared to East Asia, where countries have adopted flexible and export-oriented economic policies, Latin America lags markedly While East Asia experienced a period of rapid and

sustained growth, Latin America fell into crisis and stagnation

The debt crisis and the "lost decade" have highlighted the need for structural economic reforms and market opening Latin American countries recognize that to achieve sustainable growth, they need to participate in global trade, strengthen their competitiveness, and develop high-value-added industries These reforms not only help improve economic efficiency but also reduce dependence on foreign capital and enhance macroeconomic stability

Initially, the import substitution industrialization (ISI) strategy in Latin

American countries worked well after World War II and the Great Depression of

1930, when international trade and lending had not recovered However, in the 1990s, with the liberalization and recovery of international markets, ISI could not

help these countries become self-sufficient Lattin America moved from ISI to a policy of open markets and export-oriented industrialization (EOI) Compared to the

success of EO] in East Asia, ISI in Latin America failed because it failed to address the fundamental cause of economic growth: the accumulation of physical and human capital ISI policies discourage long-term investment, overutilize capital

reserves, lack qualified labor, and limit intermediate goods, leading to low

investment rates

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During the 1970s, the failure of the ISI became clear to economists and

policymakers Latin American governments face a dilemma: open up to foreign trade by removing trade barriers and devaluing their currencies, or borrow internationally to maintain a system with declining profits profit The role of the State is important in industrialization, but the socioeconomic structure in Latin America is different from that in East Asia The elites who controlled export markets were unwilling to change the status quo, and the region lacked the entrepreneurial class, skilled labor, infrastructure, and administrative capacity to carry out extensive industrialization Policy is not constrained by electoral authority,

and consumers have no political voice, resulting in no need for a growth strategy or

political expenditure on tariff protection

Latin America chose to borrow from abroad to "buy time", leading to multiple debt crises in the 1980s, forcing the IMF to intervene and end IS] with

structural adjustment programs to liberalize trade and capital flows In a globalized world, inward development is costly Latin America misses out on benefits such as

imports of investment and intermediate goods, access to foreign savings, and technology transfers ISI prevents the efficient allocation of resources according to

comparative advantage, leading to inefficient industries, an undiversified export structure, and underinvestment in agriculture The ISI is a complete failure in Latin America

Thus, the import substitution industrialization (ISI) policy in Latin America

in recent years has undergone many important changes due to changes in the global and domestic economic context Initially, IS] was applied to promote domestic industrial development and reduce dependence on imports However, since the

1990s, with market liberalization and globalization, Latin American countries found

that the ISI could not transform them into self-sufficient economies The failure of the ISI was largely due to the failure of these policies to address the fundamental causes of economic growth, especially the accumulation of physical and human capital, and often led to the abuse of capital reserves, shortage of qualified labor, and limitations in the production of intermediate goods

In recent times, many Latin American countries have shifted from ISI to outward-oriented economic policies, especially export-oriented industrialization (EOI) EOI policy focuses on opening markets, promoting international trade and

attracting foreign investment Countries such as Mexico and Brazil have signed free

trade agreements and implemented reform measures aimed at enhancing

international competitiveness At the same time, investment in research and

development (R&D) is also promoted, to improve the technological and production

capacity of domestic industries These countries are also focused on developing new

industries, such as information and communications technology (ICT), as well as renewable energy, to meet the needs of the global market and reduce dependence depends on imported energy

Although progress has been made, Latin American countries still face many

challenges such as economic and political instability, weak infrastructure, and a shortage of highly qualified labor However, the change in policy from ISI to EOI has brought a new direction, helping these countries participate more deeply In the

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global value chain, enhancing competitiveness and promoting economic growth lasting This shift not only reflects changes in economic policy but also demonstrates the flexible adaptation of Latin American countries to fluctuations in the international market and internal development requirements

3 ISI Strategy in Latin American Countries and EOI in East Asian Countries

3.1 IS] in Latin American countries Import substitution industrialization (ISI) was pursued primarily from the 1930s to the 1960s in Latin America, particularly in Brazil, Argentina and Mexico and in some regions of Asia and Africa The concept was popularized as an

industrial growth strategy by the famous Latin American economist, Raul Prebisch,

in the 1940s Due to the division of labor, Latin American countries mainly export food and raw materials and import finished products from European countries and the United States Before World War I, Latin American countries mainly consumed most of their imported products or, if they were produced, only produced by a small number of domestic workshops, while exports were also mainly exports of primary products

Argentine economist Raul Prebisch stated that with this division of labor, it

1s certain that poverty will continue for producers of primary products Prebisch

argues that developing countries must promote industrialization through activities

that encourage domestic production Incentive policies include protectionism of

"nascent industries” for imports and incentives for the import of capital and technology

Moreover, the First World War created a severe shortage of imported manufactured goods in Latin America, the relative prices of those goods increased, and the profits of ISI investments increased Textiles, food, and many other light consumer goods industries were the main areas of ISI during that period

The recession of the 1930s led to a shortage of imports The decline in

foreign currency revenues from exports has forced most countries in the region to

drastically cut imports The initial decline led to an increase in the use of productive

capacity, which had not been properly utilized in the 20s, and subsequently led to the creation of new industrial capacity As in World War I, ISI caused by the recession occurred mainly in the light consumer goods industries, although in some cases, especially Brazil, the steel and manufacturing materials industries were developed on a relatively small scale

The above evidence shows that the mmport and export economy in Latin American countries is quite dependent on European countries and the United States The continued dependence on food and primary product exports is said to be

precarious because of the volatility of this export, which will not be conducive to

long-term development given the relatively slow growth of world demand for such products Self-sufficiency in manufactured goods will make Latin American

economies less dependent on the world economy, and ISI will bring greater

economic independence to Latin American countries

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Government tools and policies applied to strengthen and promote the ISI industry include: Tanff protection along with exchange rate control, application of

special preferential policies for domestic and foreign enterprises importing means of

production for new industries, preferential import rates for the industry producing raw materials and intermediate goods; cheap loans from government development banks for preferential industries; the government's construction of infrastructure specifically designed to complement industries; and direct government involvement

in certain industries, especially heavier industries such as steel, where neither

domestic nor foreign private capital is willing or able to invest In the case of

countries such as Argentina, Chile, Venezuela, and especially Brazil, the government wishes to promote maximum vertical integration, that is, to promote both the final consumer goods industry as well as the intermediate and capitalist goods industries

In fact, most Latin American countries have undergone some form of ISI, they expanded the production of non-durable consumer goods such as food and beverages, and then expanded to durable goods such as automobiles and appliances Some countries such as Argentina, Brazil, and Mexico have even developed domestic production of more advanced industrial products such as machinery, electronics, and aircraft

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3.1.1 Some of the achievements that Latin American countries have achieved by adopting the ISI strategy

Table 3.1 Impact of the ISI on the performance of the regional economy and the

Latin American economy as a whole

Oil & Mining 0.3 1.5 0.6 3.5

Construction 4.2 3.6 3.1 2.6 Source: Diaz-Alejandro, Essays

BRAZIL

1939 1947 1953 1960 1968 1947 1953 1960 1968 Agriculture 25.8 27.6 26.1 22.6 17.9 30.0 26.1 22.2 20.5 Industry 19.4 19.8 23.7 25.2 28.0 20.6 23.7 28.0 29.3 Other 54.8 52.6 50.2 $2.2 54.1 49.4 $0.2 49.8 50.2 Source: Fundasio Getulio Vangas, Centro de Contas Nacionais

MEXICO

Current Prices

1900 1910 1930 1940 1950 1960 Rural 34.6 27.9 25.9 243 22.5 18.9 Extractive 6.4 9.1 13.5 8.5 3.7 3.4

Commerce & Transp 23.4 23.4 23.4 28.5 31.0 30.6

Mfg., Construc & Elec 13.2 13.7 16.7 22.6 24.5 27.7 Source: Reynolds, Mexiran Economy

LATIN AMTBRICA Current Prices Annual Rates of Growth

1969), p 18

Changes in the structure of countries’ economies: Industry accounted for a significant proportion of GDP in the early decades of this century By the 1960s, the

industry had taken up a large share in Argentina, Brazil, Mexico, and Chile The

annual growth rates of the different sectors shown in Table 1 show the extent to

which the industry determined the growth rate in the decades after World War II: Brazil's industry grew by about 51%, accounting for a large proportion compared to other industries, Mexico's trade and trading sector increased by 31%, Meanwhile, Brazil's agricultural growth rate fell by 25.9%

An important feature of the Latin American ISI in the 50s and 60s was the participation of foreign capital Although the share of total savings is usually

basically less than 10%, it is also instrumental to establish key manufacturing

industries by transferring know-how and organizational capacity This is also the

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right thing to do in infrastructure investment and government-owned heavy

industries, which depend on foreign finance and technical aid

Throughout the 20th century, Latin America transitioned away from free- market capitalismto state-led economics The ISI strategy was adopted 1n the middle

However, in the 1980s, a series of debt crises and programs The IMF's

subsequent restructuring ended Latin America's use of the ISI policy The fact that it failed and was abandoned In the 1980s and 1990s seems to point to the cause of the failure

Before 1930: From the late 19th century to the mid-20th century, the development of the United States Latin is in line with neoclassical ideas of comparative advantage and free trade Export-ornented growth, mainly in key products, has made the continent rich This 1s due to falling shipping costs, a wave

of foreign investment, and migrants from Europe to Latin America

Table 3.2 GDP per capita in Latin America and Asia (1990 international dollars)

Source: Abadie, T P (2016) How successful was the policy of import

substituting industrialisation in Latin America 1930s — 1980s: However, after the Great Depression and the Second World

War, things gradually changed The decline in international trade and finance left the

continent without foreign capital, and the terms of trade deteriorated As a result, the volume of trade declined, as well as foreign borrowing Lacking important imports, the recovery is built and developed in the direction of import substitution At the

time, the ISI was supposed to bring more economic independence to Latin America:

"self-sufficiency in goods, production would put the Latin American economy to suffer less from the world economy." (Baer W (1972) Latin American Research Review pp 95-122)

According to Baer (1972), the main policy tools aimed at increasing the price

of imports and restricting imports have been used by Latin America to promote and

strengthen the IS] are:

+ Protective tariffs or exchange control

+ Preferential import exchange rates for industrial raw materials

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+ Low-cost loans from the government's development banks

+ Governments build infrastructure specifically designed to complement industries

Thus, ISI is a policy implemented in Latin America from the 1930s to the 1980s as a response to the international environment

With the same pressure to withdraw from the links of international economies after World War I] with the rest of the world it is facing, Latin America finds domestic production capacity to replace foreign imports due to the country's immense abundance of natural resources While these natural resources allow Latin

America to focus solely on inward-looking industrialization with the development

of its economies, they also allow the region to continue to isolate itself from participation in global markets

Latin America's original "easy ISI" approach included an emphasis on

replacing foreign imports with domestically produced goods in the regional easy

manufacturing sector, which consisted mainly of primary goods These goods are largely produced by low-skilled and labor-intensive people The transition to a

secondary ISI involves higher investment in domestic skills and the workforce to

adjust to more skilled and technologically advanced manufacturing This is a secondary ISI approach that involves strong government intervention through investment in human and physical capital, and the level of debt often increases

By implementing a policy of trade and financial liberalization in Latin America, prices fell and foreign borrowing became easier to finance domestic consumption However, this inadvertently leads to the loss of private savings in the country (Birdsall, N (1997) Pathways to Growth: Comparing East Asia and Latin America.) Foreign borrowing has facilitated Latin America to aggressively finance its secondary ISI through usury external borrowing, thus making these countries vulnerable to external shocks The push in Latin America for automatic development, in which production is encouraged for intermediate goods and capitalist goods as well as final goods, has been argued to be not conducive to

growth because it hinders the focus on sectors that can achieve the highest level of

viable output due to comparative advantage and their absolute advantage Foreign borrowing and a reduction in private savings were also a cause for the shocks of the 1970s and 1988s that had a major impact on Latin American economies

After the energy crisis, the perception of creditors changed due to new interest rates and changes in international trade terms The abrupt cuts in financing that caused a macroeconomic imbalance with external debt have led directly to the Latin American debt crisis It was only at this point that the majority of Latin American countries finally moved away from their strict protectionist policies and introduced structural economic reforms The stagnation of growth during this period 1s often referred to as the "lost decade" of growth in Latin American countries, with

inflation averaging 75 percent annually for three decades until the 1990s

It can be seen that the ISI has contributed to the development of Latin

America with an average growth rate in the early 1960s, with an average annual GDP growth rate of 7.4% across Latin America in 1964 (World Bank, 2019)

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As the largest economy in Latin America, Brazil has been a typical country for the adoption of ISI since the mid-20th century, and it has had a far-reaching impact on the country's economy and society, namely:

Prior to the adoption of the ISI policy, Brazil's economy relied heavily on agriculture with key products such as coffee and sugar, which depended on exports and imports of industrial products The global economic crisis of the late 1920s and

early 1930s prompted Brazil to look for other methods of economic development

From the 1930s, especially under President Getulio Vargas, Brazil began to apply the ISI policy, focusing on developing domestic industry to replace imports Brazil invests heavily in heavy industries such as steel, chemicals, and automobiles, supporting businesses through tax incentives, subsidies, and tariff protection

The ISI policy yielded significant results in the 1950s and 1960s, with the rapid growth of domestic industrial production and Brazil becoming one of the leading industrialized countries in Latin America However, ISI also faces problems such as lack of competition, inefficient enterprises, and financial burdens due to foreign borrowing By the 1980s, Brazil was facing a debt crisis and had to readjust

Its economic policies

Brazil's ISI strategy has achieved many significant achievements but also

reveals limitations and challenges, requiring continuous adjustment and reform Brazil's experience shows that the ISI can promote industrial development in the early stages, but maintaining a competitive and sustainable economy requires a balance between protectionism and market openness, sound financial management, and flexible reforms

The ISI policy has helped Brazil build a strong and diversified industry, reduce its dependence on imports and strengthen its economic strength This was an important turning point in Brazil's economic history, transitioning from an agricultural economy to modern industry The ISI policy encourages investment In

heavy industry, meets domestic and export demand, and brings in foreign currency

revenues The government supports through concessional loans, tariff protection, and encourages research and development, creating more jobs and improving living standards

Despite many inadequacies in the implementation process, the Brazilian government is consistent with the ISI policy, helping the economy to be self-reliant and develop ISI's protectionist measures and initiatives have contributed greatly to Brazil's current economic success, creating a solid foundation for sustainable growth and enhancing its international standing

Since the 1950s, Brazil has applied the ISI with protectionist measures such

as high tariffs to protect the fledgling industry and encourage domestic production The industrialization process took place through five phases from 1950, each with its own characteristics but following the ISI strategy and domestic industrial

protection

From 1950 to 1967, Brazil implemented a large-scale ISI strategy to reduce dependence on imports and promote domestic production, part of a broader agenda

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to achieve economic autonomy and sustainable industrial development This period coincided with the second term of President Getulio Dornelles Vargas (1951-1954),

who had a great influence on Brazil's modernization Vargas implemented many

economic and social reforms, nationalized critical resources and promoted industrialization through the ISI strategy, and strongly opposed communism

In the period 1950-1967, Brazil under the leadership of Getulio Vargas implemented the ISI strategy and established Petrobras in 1953 as an important step Petrobras, the national oil and gas company, not only exploits and manages oil and gas resources, but also helps reduce dependence on energy imports, promote industnialization and develop Brazil's economy Petrobras plays an important role in creating jobs, improving industrial capacity, and strengthening the foundation for an autonomous and industrialized economy

The promotion of domestic production of basic consumer goods has caused

an increase in demand for intermediate goods, but restrictions on imports of these items have led to the slow growth of medium and heavy manufacturing industries

The balance of payments crisis has occurred due to having to spend more foreign

currency to import intermediate goods necessary for production The government

had to impose exchange controls, which lowered the price of the cruzeiro to balance

the trade balance, but this made imports difficult and increased costs

The Brazilian government enacted import licensing regulations in 1951,

giving priority to domestic manufacturers of consumer staples, in order to prevent

the import of available products and facilitate production inputs The ISI policy directly benefited the bourgeoisie, helping them to control the domestic market and maximize profits from domestic production However, these benefits are mainly focused on a few wealthy people, leading to economic and social differentiation in Brazilian society

In 1953, Brazil faced a current account crisis due to a shortage of foreign currency, forcing the government to adjust its economic policy The new policy

focuses on the application of a more flexible exchange rate system to facilitate the import of raw materials needed for domestic production At the same time, the

policy also encourages the export of intermediate goods and machinery at more

favorable exchange rates, in order to promote new industries and reduce

dependence on traditional industries

The regime of Getulio Vargas in Brazil, whether during the dictatorship or

democracy, has many similarities with the apartheid regime in South Africa Vargas's policies concentrated power and interests in the hands of a small group of businessmen and elites, while workers and peasants generally did not benefit from these economic policies This inequality has led to social tensions and great divisions in Brazilian society

After Getulio Vargas' death in 1954, Brazil transitioned to the leadership of Juscelino Kubitschek from 1956 to 1961 Kubitschek's regime differs from the

previous policy by encouraging foreign investment to promote economic

development, but still maintains the basic elements of the ISI strategy Despite

efforts to open up the economy, Brazil has faced difficulties due to weak

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Institutional infrastructure, leading to a "fullness" of foreign capital into the economy, fierce competition and great pressure on domestic businesses and the middle class

During the leadership of Juscelino Kubitschek from 1956 to 1961, Brazil implemented policies aimed at encouraging foreign investment and protecting the domestic market The Kubitschek government has given priority to supporting and developing key industries such as automobiles, cement, steel, aluminum, cellulose, heavy machinery, and chemicals, protecting them from foreign competition Thanks

to these policies, Brazil's economy has achieved impressive growth momentum, with a GDP growth rate of more than 7% per year during this period However, this change also faced challenges and uncertainties, especially for the middle class, contributing to changing Brazil's ideology and social structure

In the period from 1968 to 1973, the period known as the "Brazilian Miracle"

under the leadership of President Emilio Medici, Brazil implemented strategic

economic policies aimed at strengthening and expanding the economy President Medici has successfully combined the policy of import substitution industrialization

(SI) with an outward-looking development strategy, focusing on improving

infrastructure and enhancing the country's production capacity The central theme is Investment in infrastructure, with efforts to build and upgrade roads, bridges and

other infrastructure to facilitate industry and trade These policies have brought

about strong economic growth, increased the tax/GDP ratio, and created a stable

and attractive business environment for domestic and foreign investors

In the period from 1968 to 1973, known as the "Brazilian Miracle" under the leadership of President Emilio Medici, Brazil succeeded in attracting foreign

Investment and strong economic development The Medici government has combined its import substitution industrialization (ISI) policy with an outward- looking development strategy, focusing on improving infrastructure and enhancing

the country's manufacturing capacity Thanks to measures to encourage foreign

investment and stabilize the business environment, Brazil has created an attractive Investment environment and achieved significant economic growth, laying the foundation for sustainable development in the future

Since 1974, Brazil has entered a period of strong economic growth after the launch of the Second National Development Plan (1] PND) II PND aims to promote heavy industries and chemicals, reduce dependence on imports and increase domestic production The government also promulgated the Import Law in 1974 to control the import of raw materials, protect the domestic industry and promote the

export of surplus products These measures have helped to reduce the total value of imports and strengthen the Brazilian economy, creating a stable business

environment that 1s more resilient to global economic fluctuations

Since 1974, Brazil has adopted strategic economic policies aimed at promoting sustainable development and reducing dependence on imports The government has focused on promoting the export of domestic surplus products,

providing incentives and favorable conditions for businesses to expand into

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international markets This helps balance the trade balance, strengthen Brazil's production capacity and international competitiveness

The Second National Development Plan (1] PND) and the 1974 Import Law

played an important role in reshaping the Brazilian economy, creating a stable

economic environment and attracting investment Using the Import Substitution Industrialization (ISI) model as a strategic tool, Brazil shifted to more outward-

looking economic policies over the next decade, in order to complement and

enhance the benefits already gained from the ISI

New measures aimed at expanding international trade and attracting foreign

investment have helped Brazil improve its international competitiveness and

prepare for important changes in its economic policy focus

Through many periods of complex economic history, Brazil has applied skillful economic policies to achieve stability and sustainable development The

government has encouraged domestic enterprises to expand their operations to international markets, adjust tariffs to create more favorable conditions for exports, and relax regulations on foreign investment to attract foreign capital

These measures reflect a clear awareness that, in order to maintain and enhance economic development, Brazil needs to be more deeply integrated into the global economy This outward-looking policy not only maximizes the fruits of the Import Substitution Industrialization (ISI) model, but also opens up new opportunities for the Brazilian economy, helping the country become one of the strongest growing economies in the world

Despite having faced terrible inflation, Brazil has succeeded in reducing the

inflation rate to a low level after the nght economic reforms Bubble cycles and

economic booms frequently occur in the ISI model, however the government has

continuously adjusted and revised macroeconomic policies to adapt to labor market fluctuations and other economic challenges These measures reflect the complexity

of the economic development process, with many factors ranging from industrial

policy to social factors carefully considered to ensure the stability and sustainability

of the Brazilian economy

The ISI has left a deep imprint on Brazil's economic structure and

development strategy, although it is no longer the current mainstream policy Brazil continues to develop strategic and high-tech industries, with efforts focused on

areas such as information technology, telecommunications, and renewable energy

The COVID-19 pandemic has accelerated the trend of repositioning domestic production and emphasized the need for self-sufficiency in several key sectors However, Brazil still faces many challenges, including poor infrastructure,

high production costs, and competitive pressure from other countries in the

international market Modern industrial policy should introduce flexible measures to protect domestic resources, strengthen production and transportation capacity, attract foreign investment, and international cooperation to enhance global competitiveness and improve the quality of life

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In conclusion, Brazil needs to combine elements of the ISI with modern policies to promote sustainable development and strengthen its global position 3.1.2 Some limitations of the ISI strategy in Latin American countries

By the 1960s, there began to be criticisms of the ISI policy, firstly, the state

called focusing only on consumer goods without expanding other manufacturing

sectors, low employment rates, slow economic growth, along with the emergence of

social conflicts due to internal migration and excessive mnequality ISI policies in

Latin America's leading developed economies such as Brazil and Mexico have been quite successful, at least in the short term; However, in smaller countries it 1s less successful

Despite its success in many ways, the implementation of the ISI has led to high inflation and other economic problems As these problems were exacerbated

by the stagnation and foreign debt crisis in the 1970s, many Latin American

countries sought loans from the IMF and the World Bank At the insistence of these

organizations, these countries have had to abandon the ISI protectionist policy and open their markets to free trade Specifically, in the 1970s, according to the IS] policy, Latin American countries only focused on the production of consumer goods, protected by the state, the concentration was also due to the protection from the external competitive market along with the protection of the domestic market, enterprises tended to focus on the production of protected goods more than other industries because they all want to maximize profits and minimize costs, when they focus on producing products protected by the state, it leads to a decline in investment, other manufacturers lose motivation, causing an imbalance in the industry structure Another limitation is that the investment of very little capital in research and technological improvement is a major shortcoming, so they have to import production materials, the dependence on foreign technology increases

production costs Industries in Latin America have gradually become outdated and

inefficient, they are unable to compete with the international market When Latin American countries implement import substitution policies, they aim to promote industnialization to concentrate domestic resources to produce products to replace imports, they import means of production, they keep importing products that require large capital, here they need foreign currency, but foreign currency 1s only obtained when exporting, Due to the focus only on domestic production to replace imports,

the long-term shortage of capital forced Latin American countries to borrow debt

from the world credit market, the IMF and the World Bank In the early 1980s,

rising inflation, large public sector deficits, and high foreign debt, Latin America began to shift from heavy state intervention to economic liberalization reforms that

emphasized reducing the role of the state, financial discipline, and financial and trade liberalization Together with the economic crises of 1980 and 1990, many Latin American countries have been forced to carry out economic reforms along the lines set forth by the International Monetary Fund and the World Bank,

implementing structural adjustments that emphasize macroeconomic reforms that

reflect the thinking associated with the so-called 'Washington Consensus’

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Table 3.3 Actual growth rate by sector and growth rate of gross domestic product

and industrial product

Chile Mexico Colombia Agriculture 2.3 3.1 3.0 3.9 3.5 3.0

Construction 1.4 4.6 8.1 5.9 —0.2 1.9 Source: Naciones Unidas, Estudio econdmico de América Latina, 1965

b) Latin America: Growth Rates of the Total Gross Domestic Product and of Industrial Product (Annual Cumulative Rates)

Total Product Industrial Product

which has a comparative advantage in agriculture Due to the decreasing proportion

of food and basic products in world trade while the agricultural sector of Latin American countries tends to increase (Argentina increased sharply, Brazil increased

by 86.5%, Chile increased by 34.8%, Mexico increased by 30%), so Latin America's gross domestic product and industrial product tended to decrease (gross domestic product decreased by 11.1%), industrial products decreased by 26%) Latin America's ISI strategies are seen as a driving force towards national self- sufficiency in terms of the benefits of the international division of labour in newer

directions This emphasis on self-sufficiency is seen as detrimental to rapid

economic growth for a number of reasons: With a small market, limited capital, and

a shortage of skilled manpower, self-sufficiency industrial growth leads to the

development of inefficient and high-cost industries, especially evident in industries

with high fixed costs

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