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Lecture 6

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Political Science
Robert Brym

POL201 – lecture 6 (Oct 15 ) - Import substitution industrialization Four strategies of economic development - Manufacture – export o Strong manufacturing base, produce secondary goods - Forced capitalization o Force savings o Low wages o Result build up reserves of capital that will allow for domestic investment - Primary product export o Export primary product as an end itself or a route to capitalization - Import substitution industrialization o Build up manufacturing sector by shutting down imports of manufacturing goods o Produce goods that were formally imported o Domestic manufacturing base ISI - First wave generated by WW1 - Developed countries reoriented manufacturing to military goods - Stop manufacturing exports - Shortages - Responded o Went without o Trying to produce shortage products domestically - Building up manufacturing enterprise to produce higher value goods that were formally imported; reducing economic focus on primary resources - Light consumer goods: textiles, processed foodstuff, metallurgical products - Heavy industry: iron and steel, heavy chemicals, automobile - Build domestic manufacturing sector so won’t be vulnerable to countries where imports came - Solution to dependency o Build up manufacturing base by withdrawing from the global market o Dependency problem came from unequal terms of trade o Creates a balance of trade deficit if country is important more than exporting o Withdraw by  Stop importing secondary goods  Stop exporting primary goods  Involve developing domestic manufacturing base  Can now export of secondary goods  Cut off dependence of import of secondary goods  Become more like country in the core o Stop interaction in the global market Reasons to implement ISI - Volatility of primary commodity prices o Agricultural products more volatile than secondary produces because of forces can’t control (changing consumer preferences,, taxes and tariffs) - Declining terms of trade o Demand in primary goods decrease (consuming more secondary goods) o Structural changes that can’t or won’t be reversed o Lower commodity prices as result of high technological advances - Developing and protecting infant industry o Start manufacturing in areas where there is an internal market o Cut off import of that product so there is no competition o Capture market of imports so government makes sure consumers can no longer buy overseas products - Forward and backward linkages o Spillover if sufficient or a lot of forward and backward linkages
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