On the Import Intensity of Import Substitution

Abstract

SUMMARY This paper deals with several issues related to the impact of import substitution on a country's demand for imports. With the help of a simple model, it points out that once a given rate of growth has been reached and is maintained through time, the fact that investment expenditures have a high import component will not give rise to balance of payments difficulties, as the direct impact of this year's investment on the demand for imports should be more than offset by last year's investment in the import substituting industry now coming to fruition. The pressures on the balance of payments will arise during the transition period when a country is attempting to step up capital formation in the import substituting sector. The paper also emphasizes the need to take into account all direct and indirect repercussions of an increase in investment on the demand for imports when estimating the foreign exchange savings to be realized from a given investment project. The second part of the paper considers the likely effects of a change in the relative prices of imports on the manufacturing sector producing goods previously imported, but which still relies on imported raw materials and intermediate products, and on the demand for imports. Several reasons are given for a presumption against a high price elasticity in the demand for imports, based on the derived nature of a large component of such demand. Given these structural conditions the alternatives open to a policy maker in a semi‐industrialized country facing the need to cut back imports are likely to be quite grim.

An Economic History of Twentieth-Century Latin America

“…26 Sepu  lveda and Chumacero (1973) quoted by Izquierdo (1995), p. 110. 27 In a contemporary article, Carlos Dõ Âaz-Alejandro (1965) showed that under various circumstances the deepening of the import-substitution policy to include intermediate and capital goods was likely to be import-intensive, especially when industrial growth was very rapid. 28 Public investment devoted to agriculture declined from 17.1 per cent in the 1949±56 period to 11.2 per cent in 1963±70, and the real price of corn, beans and wheat declined over 20 per cent in the 1960s.…”

The New Authoritarianism in Latin America

“…viii to ix), in "Reflexiones" he adds Mexico to the analysis (pp. [44][45][46][47][48][49][50][51][52][53], thereby implicitly including Latin America more broadly in his framework. Following the emphasis of this more recent study, the present discussion treats his framework as applying to Latin America rather than South America.…”

“…48 In fact, in the 195o's and particularly between 1956 and 1961, a substantial part of the most "difficult" lSI was completed and the problems that emerged derived more from the difficulty of "digesting" the results of this lSI than from the limitations on the extent of lSI. Naturally, this 48 This is not the case with O'Donnell in his "Reftexiones" article, as his comments on p. 13 demonstrate, although he may have underestimated the extent of deepening which was already achieved before 1964.…”

“…48 In fact, in the 195o's and particularly between 1956 and 1961, a substantial part of the most "difficult" lSI was completed and the problems that emerged derived more from the difficulty of "digesting" the results of this lSI than from the limitations on the extent of lSI. Naturally, this 48 This is not the case with O'Donnell in his "Reftexiones" article, as his comments on p. 13 demonstrate, although he may have underestimated the extent of deepening which was already achieved before 1964. In an earlier work this underestimation is clearer, for example when O'Donnell asserts that: "What happened in the Argentine and Brazilian economies came to be known as the 'exhaustion' of the 'easy' stages of industrialization-i.e., the end of the period of extensive, horizontal industrial growth based on the substitution of imports of did not mean that the country had achieved some form of quasi self-sufficiency in the manufacture of producers' goods.…”

“…Many of the essential features of Chile and Uruguay's institutionalized constitutional orders, for example, were in place by the early tgoo's. 48 Julio Coder, "State and Regime: Comparative Notes on the Southern Cone and the Enclave Societies," Chapter 6 in this book. Cotler here is following the lead of Cardoso and Faletto, Dependencia y Desarrollo. the context of the large, depressed, "patriarchical" sugar economies of the northeastern states.…”