Import Substitution Industrialization

Import substitution industrialization or "Import-substituting Industrialization" (often called ISI) is a trade and economic policy that advocates replacing foreign imports with domestic production. ISI is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. The term primarily refers to 20th century development economics policies, although it has been advocated since the 18th century by classical economists such as David Ricardo, John Stuart Mill and Friedrich List.

ISI policies were enacted by countries within the Global South with the intention of producing development and self-sufficiency through the creation of an internal market. ISI works by having the state lead economic development through nationalization, subsidization of vital industries (including agriculture, power generation, etc.), increased taxation, and highly protectionist trade policies. Import substitution industrialization was gradually abandoned by developing countries in the 1980s and 1990s due to structural indebtedness from ISI related policies on the insistence of the IMF and World Bank through their structural adjustment programs of market-driven liberalization aimed at the Global South.

In the context of Latin America development, the term Latin American structuralism refers to the era of import substitution industrialization in many Latin American countries from the 1950s until the 1980s. The theories behind Latin American structuralism and ISI were organized in the works of Raúl Prebisch, Hans Singer, Celso Furtado and other structural economic thinkers, and gained prominence with the creation of the United Nations Economic Commission for Latin America and the Caribbean (UNECLAC or CEPAL). While the theorists behind ISI or Latin American structuralism were not homogeneous and did not belong to one particular school of economic thought, ISI and Latin American structuralism and the theorists who developed its economic frame work shared a basic common belief in a state-directed, centrally planned form of economic development. In promoting state-induced industrialization through governmental spending through the infant industry argument, ISI and Latin American structuralist approaches to development are largely influenced through a wide-range of Keynesian, communitarian and socialist economic thought. ISI is often associated and linked with dependency theory, although the latter has traditionally adopted a much broader sociological framework in addressing the cultural origins of underdevelopment through the historical effects of colonialism, Eurocentrism, and neoliberalism.