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Comparison and contrast of export diversification and import substitution strategies

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  1. Introduction
  2. A look into instability in export earnings in selected ESCAP developing economies
  3. Growth rates in the Latin American countries
  4. Conclusion
  5. Bibliography

Export diversification and import substitution are both theories of growth used to stimulate economies in various countries. The first of these theories uses an increased base of exports to trigger economic growth, whereas import substitution tries to achieve the same aim by reigning in expenditure on imports through the local production of these goods. This has been the strategy adopted by many developing countries as they can ?insulate themselves from the sharp and unexpected changes in their terms of trade, and by extension, stabilize domestic incomes and employment?.

[...] These same countries are still susceptible to variations in world commodity prices due to their high specialization in products and markets. Table 1. Instability in export earnings in selected ESCAP developing economies, 1985-1995 Instability of Instability Instability between Instability of per cent per cent cent Province of Democratic China Republic Korea Guinea Sources: ESCAP secretariat calculations based on United Nations, Monthly Bulletin of Statistics, Vol. No September 1996; International Monetary Fund, International Financial Statistics, Vol. XLIX, No November 1996 and Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries, Vol. [...]

[...] The implementation of tariffs was to put up trade barriers for imports in order to enable the domestic industries that were just starting out to be able to implant themselves and prosper before they were hit by competition and lower prices from the more established exports. Latin American countries saw economic growth between the 1950-70s. this was especially marked in countries with larger populations mainly because the growing domestic demand is satisfied not by imports but by the local substitutes and for larger population, one imports less saving more than where the demand is needed for fewer people. [...]

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