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A Reappraisal of the Origins of Import-Substituting Industrialisation 1930–1950

Published online by Cambridge University Press:  05 February 2009

Rosemary Thorp
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Extract

The current enthusiasm for trade liberalisation in Latin America, and indeed for a broad-ranging return to the market, has as its backdrop the widespread disillusion with the protectionist model of the 1950s and 1960s. Import substituting industrialisation (ISI) is seen as having used tariff barriers and controls to generate an extremely inefficient industry, suffering under a weight of state bureaucracy, with often inappropriate direct state participation. Its excessive import needs, for all its import-substituting origin, are directly related to the generation of the debt crisis.1 The high and poorly-structured tariffs brought tariff-hopping foreign investment on inappropriate terms. Repressed domestic interest rates allowed such firms to borrow locally at negative real rates and crowd out locals who then borrowed abroad. This inefficiency, plus the overvalued exchange rates implicit in heavy protection, made exports of manufactures unthinkable, and thus condemned the incipient industry to severe limitations of market size as well as condemning the economies to growing balance of payments non-viability. This in turn severely affected industrial progress by limiting growth and exposing firms to stop-go policies.

In turn, ISI policies themselves are seen as having originated with the turning point of the 1929 depression, when the export-led growth mechanism essentially broke down and at least the more sizeable Latin American economies turned fatally inwards. The trajectory from 1930 to the ‘fully-fledged’ ISI model of the 1950s and 1960s is typically left vague.

This article will attempt to show that recent research now allows us a much fuller and more nuanced view of the evolution from the export economy model of the early century through to the later ISI model.2

Type
Research Article
Information
Journal of Latin American Studies , Volume 24 , Supplement S1 , March 1992 , pp. 181 - 195
Copyright
Copyright © Cambridge University Press 1992

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References

1 Griffith-Jones, S. and Sunkel, O., Debt and Development Crisis in Latin America: the End of an Illusion (Oxford, 1986).Google Scholar

2 This work draws on two recently completed chapters for The Cambridge History of Latin America, vol. VI, forthcoming: Bulmer-Thomas, V., ‘The Latin American Economies in the 1930s’Google Scholar and Thorp, R., ‘The Latin American Economies from the Second World War to the 1950s’.Google Scholar Also important was Ground, R. Lynn, ‘The Genesis of Import Substitution in Latin America’, CEPAL Review, no. 36 (1988)Google Scholar; Díaz-Alejandro, C., ‘Latin America in the 1930s’, in Thorp, R. (ed.), Latin America in the 1930s: the Role of the Periphery in World Crisis (London, 1984).CrossRefGoogle ScholarFishlow, A., ‘Origins and Consequences of Import Substitution in Brazil’, in Di Marco, L. E. (ed.), International Economics and Development (New York, 1972)Google Scholar, is a classic on this period.

3 See Díaz-Alejandro, C., ‘Latin America in the 1930s’Google Scholar; and Bulmer-Thomas, V., ‘The Latin American Economies in the 1930s’.Google Scholar

4 Bulmer-Thomas, V., ‘The Latin American Economies in the 1930s’.Google Scholar

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