1. Introduction
It was the export promotion (EP) strategy that accounted for East Asians states success of
economic development. Meanwhile, many other developing countries such as Latin
America countries had committed to an alternative strategy, import substitution (IS). The
IS strategy yielded disappointing results: most of these countries did not succeed in either
industrialization or economic growth while export-oriented industrializations (EOIs)
sustained fast economic development. Data from the World Bank (1993) showed that the
real GDP of EOIs (7.6%) grew faster than IS countries (3%) during 1965-1990. There is no
doubt that EOIs outperformed countries that adopted IS strategy in terms of economic
development. However, are there any other aspects that EP is better than IS?
In this essay, the detailed comparisons between these two strategies will be discussed in
three main parts: (1) industrial sector; (2) agriculture and service sector; and (3)
international trade policy. Also, the merits of IS and the limits of EP will be mentioned.
2. Comparisons between EP and IS
2.1 Definition of IS and EP:
The IS strategy prescribed by structuralists such as Presbish (1950) and Myral (1957)
favored expansion of the industrial sector in the domestic market to substitute for imports.
The key idea is to protect “infant industries”, especially heavy industries, by substituting
the imported goods with the locally produced goods via government intervention to the
whole economy. The structuralists believe protection is necessary for most developing
countries to establish a strong base for domestic industry while it develops into a mature
local industry. The government can make this protection not only via tariffs, quotas but
also via exchange rates, prices of the factors of production and interest rate.
Opposite to the IS strategy, EP is a trade and economic policy aiming to speed-up the
industrialization process of a country through exporting goods for which the nation has a
comparative advantage. Export-led growth implies opening domestic markets to foreign
competition in exchange for market access in other countries. Reduced tariff barriers,
floating exchange rate (devaluation of national currency is often employed to facilitate
exports), government support for exporting sectors and attracting FDI are all examples of
policies adopted to promote EOI, and ultimately economic development.
2.2 Industrial Sector
In most IS countries, industrialization, particularly the industrialization of heavy industries
such as steel, heavy machinery and automotive, was among the top priorities of the state
plan. Various protection measures and incentives were provided to domestic industries.
Typical practice included direct subsidies to tax exemptions, direct government investment
