Commercial Policy: Export Promotion or Import Substitution?

Abstract

During the last decades, governments of Third World Countries have adopted policies of import substitution as development strategies. Nevertheless, these policies, built with complex tariff and non-tariff prohibition systems have not obtained satisfactory results for many cases. This article pretends to give some guidelines to determine if imports protection is effective or not. Also analyzes relative prices with the objective to see if other economlc sectors are seriously damaged. The author says that through different mechanisms, the exporting sector is damaged by the negative incidence of import tariffs. In short, a developing country would only be able to have a well protected substitution sector or a well oriented non-traditional exporting sector, but never both at the same time with the same degree of importance.