ABSTRACT
In the literature on trade strategies, export promotion (EP) and import substitution (IS) are usually depicted as polar opposites. EP and IS can, and indeed have been found to coexist. Underlying the bipolar classification of trade strategies is the standard two-sector trade model, in which one sector produces exportable goods, the other importables. Jagdish N. Bhagwati used such a model to define alternative trade strategies. To accommodate those cases where EP and IS are both present or absent, people extend the Bhagwati model into a three-sector one: the importable, the exportable, and the non-tradeable sectors. A trade strategy is implemented primarily through various incentives and disincentives that affect resource allocation among sectors and economic activities. To be quantifiable, the various incentives/disincentives must be expressed in terms of their effect on the domestic prices of inputs as well as output.
