Import Substitution, Trade Liberalisation & Development

Vocabulary cards covering the main concepts, arguments, policies, outcomes, and debates surrounding import substitution, trade liberalisation, and East Asian growth strategies.

Import Substitution Industrialisation (ISI)

A development strategy that restricts competing imports so new domestic industries can grow behind protective barriers.

Infant Industry Argument

The claim that potential industries need temporary protection until they become competitive internationally.

Comparative Advantage (Potential)

The idea that countries may later excel in certain industries, even if they cannot yet compete with established foreign producers.

Costs of ISI

Complex regulations, high tariffs, inefficiently small industries, and wasteful resource use leading to slower growth.

High Tariff Rates

Taxes on imports under ISI that raised consumer prices and production costs for firms relying on imported inputs.

Trade Liberalisation

The gradual removal or reduction of trade barriers with the aim of spurring economic development.

Mixed Evidence on Liberalisation

Some countries (e.g., Brazil) slowed after opening trade, while others (e.g., India) accelerated, making outcomes inconclusive.

Macro-economic Instability

Fiscal and financial crises that contributed to sluggish growth after trade liberalisation in several Latin American nations.

Income Inequality Debate

The contention that freer trade may widen income gaps within liberalising countries.

High-Performance Asian Economies (HPAEs)

East Asian countries—such as Japan, South Korea, Taiwan, Singapore—that achieved rapid growth alongside strong export sectors.

Export-Oriented Industrialisation (EOI)

A policy focus on promoting exports in targeted industries rather than protecting domestic markets.

Open Economy

An economy with a high ratio of exports and imports to total production, characteristic of HPAEs.

Free Trade vs. Restricted Trade

Even ‘open’ HPAEs maintained some trade barriers; openness did not equal complete free trade.

High Saving & Investment Rates

Key factors cited by economists as drivers of East Asia’s rapid growth, independent of trade policy.

Education & Human Capital

Rapid gains in literacy and numeracy in HPAEs that supported a productive labour force and growth.

Imperfect Capital Markets

Market failure where borrowing constraints justify temporary protection for infant industries.

Appropriation Problem

Difficulty for firms to capture the full returns on investment, another rationale behind the infant industry argument.

Policy Shift of the Mid-1980s

The widespread abandonment of ISI in favour of trade liberalisation across many developing countries.

Economic Development (Ultimate Goal)

The common objective underlying both ISI and trade liberalisation strategies.

Skepticism About Trade-Led Growth

View that high trade volumes may correlate with, but not necessarily cause, overall economic growth.