IMF Working Papers

The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy

By Reda Cherif, Fuad Hasanov

April 26, 2024

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Format: Chicago

Reda Cherif, and Fuad Hasanov. The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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 21st 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.

Subject: Competition, Economic sectors, Exports, Financial markets, Imports, International trade, Manufacturing, Tariffs, Taxes

Keywords: Caribbean, Competition, D. export orientation, Diversification, Export orientation, Exports, Global, Growth, Import substitution, Import substitution policy, Imports, Industrial policy, Innovation, Manufacturing, North America, Policies in India, Policy strategy, Risk tradeoff, Tariffs, Technology

Publication Details

  • Pages:

    41

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2024/086

  • Stock No:

    WPIEA2024086

  • ISBN:

    9798400270802

  • ISSN:

    1018-5941

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