Import substitution

Import substitution industrialization also called ISI is a trade and economic policy based on the premise that a developing country should attempt to substitute products which it imports, mostly finished goods, with locally produced substitutes. The theory is similar to that of mercantilism in that it promotes high exports and minimal imports to increase national wealth.

Related Topics:
Trade - Economic - Policy - Developing country - Mercantilism

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The policy has three major tenets: an active industrial policy to subsidize and orchestrate production of strategic substitutes, protective barriers to trade (namely, tariffs), and a monetary policy that keeps the domestic currency overvalued. Hence import substitution policies are not favored by advocates of absolute free trade.

Related Topics:
Tariff - Monetary policy - Free trade

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