ABSTRACT
As we saw in the last chapter, one of the key features of import substitution industrialization (ISI) was the deliberate reduction of imports in the region. In parts of the discussion, one probably picked up the impression that substituting domestic production for imports may not have improved the economic situation of Latin America. The purpose of this chapter is to show why the trade policy part of ISI led to such poor results. In order to do this, it will be necessary to show why unrestricted international trade is normally an optimal trade policy. Sadly, this is rarely the policy that governments in Latin America or anywhere else pursue. Although there a number of government policies that interfere with trade, the most important for our purposes are tariffs and quotas. The second section of the chapter shows how these policies affect the domestic economy. The subsequent sections of the chapter cover the history of trade policy in Latin America before, during, and after the implementation of ISI. This history is critical in understanding Latin America ’ s relative isolation from the world economy, the Lost Decade, and the lingering effects of ISI in the region.
