Import Substitution and Trade Protectionism
QUESTION
The economy of XYZ recently gained independence from their colonial masters. The first president Dr. Yebeyebi embarked on a massive imported substitution drive as a way of promoting growth and development. Industrialization became a vital off shoot of this policy and in the process the country concentrated on inward activities and restricted through several tools the importation of certain products.
Would you as a consultant support their initiative viz –a- viz the supposed gains and the welfare implications of international trade.
Introduction
Import substitution and trade protectionism are tools or strategies that have been adopted by many a country to promote economic growth and development when independence is gained. Countries like Ghana, China, India, Malaysia and many other countries have all used these tools or strategy in one way or the other for their economic growth.
To appreciate the strategy being adopted by Dr. Beyeebi and to support it or not, it would be advisable to understand what import substitution and trade protectionism are, the benefit to be derived if the economy is closed or restricted and the benefit international trade provides which will be absent if trade is restricted.
Import Substitution
Import substitution is the strategy of encouraging domestic industry by limiting imports of manufactured goods. In economics, an import is any good (e.g. a commodity) or service brought into one country from another country in a legitimate fashion, typically for use in trade. Import goods or services are provided to domestic consumers by foreign producers. The strategy is inward oriented in that trade and industrial incentives favor production for the domestic market over the export market An import in the receiving country is an export to the sending country. If a country practices import substitution, then the country is restricting free trade of certain goods and services. Free trade refers to the trade that is free from
The economy of XYZ recently gained independence from their colonial masters. The first president Dr. Yebeyebi embarked on a massive imported substitution drive as a way of promoting growth and development. Industrialization became a vital off shoot of this policy and in the process the country concentrated on inward activities and restricted through several tools the importation of certain products.
Would you as a consultant support their initiative viz –a- viz the supposed gains and the welfare implications of international trade.
Introduction
Import substitution and trade protectionism are tools or strategies that have been adopted by many a country to promote economic growth and development when independence is gained. Countries like Ghana, China, India, Malaysia and many other countries have all used these tools or strategy in one way or the other for their economic growth.
To appreciate the strategy being adopted by Dr. Beyeebi and to support it or not, it would be advisable to understand what import substitution and trade protectionism are, the benefit to be derived if the economy is closed or restricted and the benefit international trade provides which will be absent if trade is restricted.
Import Substitution
Import substitution is the strategy of encouraging domestic industry by limiting imports of manufactured goods. In economics, an import is any good (e.g. a commodity) or service brought into one country from another country in a legitimate fashion, typically for use in trade. Import goods or services are provided to domestic consumers by foreign producers. The strategy is inward oriented in that trade and industrial incentives favor production for the domestic market over the export market An import in the receiving country is an export to the sending country. If a country practices import substitution, then the country is restricting free trade of certain goods and services. Free trade refers to the trade that is free from