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- Title
The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy.
- Authors
Cherif, Reda; Hasanov, Fuad
- Abstract
Industrial policies pursued in many developing countries in the 1950s–1970s largely failed while the industrial policies of the Asian Miracles succeeded. We argue that a key factor of success is industrial policy with export orientation in contrast to import substitution. Exporting encouraged competition, economies of scale, innovation, and local integration and provided market signals to policymakers. Even in a large market such as India, import substitution policies in the automotive industry failed because of micromanagement and misaligned incentives. We also analyze the risk tradeoffs involved in various industrial policy strategies and their implications on the twenty-first-century industrial policies. While state interventions may be needed to develop some new capabilities and industries, trade protectionism is neither a necessary nor a sufficient tool and will most likely be counterproductive.
- Subjects
IMPORT substitution; INDUSTRIAL policy; PROTECTIONISM; INTERVENTION (Federal government); DEVELOPING countries; AUTOMOBILE industry; ECONOMIES of scale
- Publication
Journal of Industry, Competition & Trade, 2024, Vol 24, Issue 1, p1
- ISSN
1566-1679
- Publication type
Article
- DOI
10.1007/s10842-024-00414-9