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Import Substitution Industrialization Headline text Import Substitution Industrialisation
Import Substitution Industrialisation was a theory of industrialisation based on the dependency theory of undeveloped nations. The theory was popularised by Argentine economist and UNECLA head Ral Prebisch in the 1950s, and was subscribed to by many Latin American countries. The theory is similar to that of mercantilism in that it believed in high exports and minimal imports to increase national wealth. The policy had three major tenets: active industrial policy, protective barriers to trade, and monetary policy that kept the domestic currency overvalued. Prebisch believed that developing countries needed to create forward linkages domestically and could only succeed by creating the industries that used the primary products already being produced by these countries. The tariffs were designed to allow the domestic industry to prosper. The policy was very successful from the 1950s to the 1970s in creating economic growth in Latin American countries. The policy began to fail in the early 1980s, as a result of overspending by the governments involved, mostly from spending government reserves trying to keep the currency stable. As the Latin American governments failed, the began to default on their debts and were forced to turn to the International Monetary Fund for help. The failure of ISI led to the rise of the Washington Consensus.
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