Import Substitution (definition, objective, limitations)

The import substitution It is a process where the goods that the state previously imported are made within the same country.

In the same way it can involve the measures of economic policy so that they favor the procedure of import substitution, such as the establishment of high tariffs in the importation of goods, previous import deposits and all kinds of obstacles to the entry of foreign goods entering the the nation.

Despite this, the import substitution It could be a consequence of the natural evolution of the market, which responds to the decrease in the costs of national production or to the improvement of the quality of products.

This process is called acquisition of comparative advantages and consists of the allocation of productive resources of the goods that can be of better quality, more profitable and lower costs.

Objective of import substitution

The objective of this process is assess national production within the business environment, since it has the purpose of improving the industrial economy of a nation from its differential element.

It is a philosophy business that has the ability to reinforce the value of domestic production as a means that can develop and produce wealth. From this point of view, the market visualizes the interior and not the exterior of the commercial system that is outside the border of the nation.

The substitution has a view that responds in the same way to the objective observation of a map where states that have different relationships and influences abroad are found.

Implementation of import substitution

The implementation of this process allows the nation to promote the industrial development of all sectors that the state makes more imports. In this way, not only industrial development is achieved, but also the improvement of the balance of trade and payments of the state, thus reducing external dependence.

However, it may happen that countries tend to involve some measures in order to protect the local industry through tariffs, which it is not a good measure because it limits competition and good industrial development in the long term because you no longer need to seek development maximum.

Limitations of import substitution

A country that imposes measures and norms that favor the promotion of import substitution, you have to have an action plan in place so that you can achieve the objective within the scope economic that shows a new process where the state achieves a position within the map that has greater strength.

The real challenge of this method does not occupy so much the theoretical vision, but the practical application. Any difficulty that arises in its development will depend on the success of this production process, which is not infallible by itself.

That means that it is very convenient to know what its scope is, what opportunities it can raise and what limitations it has within the environment that is in the framework where you want to materialize from the value local aggregate.

Strengthening the local economy in the face of import substitution

The industrial development of a state can drive a commercial area to increase its autonomy for the purpose of developing the production of the goods that it previously imported. In this way, you will have the opportunity to improve your business.

In that case, responsible politicians must take economic measures that stimulate local production even when they have to face import as an alternative. When the economic independence of a place that produces its own goods and services manifests, it also helps increase employment and the creation of new work projects.

In the same way, this situation can become an obstacle to free trade based on commercial relations. between different countries, where there are also limitations in the inequality of opportunities between different scenarios.

Those who are against import substitution think that it is inconvenient to limit international trade today. In addition, one of the challenges of local production is that it must compete with the universal scenario where there are already companies that are already positioned for having solidity in your brand.

What is import substitution industrialization?

It is an economic theory that indicates that a state so that it can achieve its development, must carry out the corresponding transformation in the raw materials that it has instead of export them. That means that the nation must alert the local production of first-rate goods that will finally reach the consumer.

The objective of this model is for the state to be less dependent on the commercialization of its natural resources. This means that the government must reduce taxes and facilitate financing for the various activities that add value to primary goods.

Similarly, some restrictions must be imposed, such as tariffs depending on the merchandise where it comes from.

Measures for import substitution industrialization

The main measures include the following:

Subsidies

They refer to the economic support that comes from the state for the execution of various activities, thus it will be possible to cover losses and stimulate companies in the sector that expands their operations.

The barriers

They are those that impose high tariffs on goods that are intended to be produced in the local area. They may establish limitations on imports that will depend on the country of origin.

The intervened exchange rate

In case the price of foreign currency remains high due to state intervention, then exporters will receive more than the national currency for their sales. In the same way, by decreasing imports they will be discouraged.

Planning

The nation must decide which are the key sectors to finance them and grant them tax benefits.