5 Protectionism and industrialization in a Harris-Todaro model with non-traded goods

This chapter utilizes the Harris-Todaro (HT) model with non-traded goods to examine certain consequences of import substituting industrialization (ISI) strategies pursued in many less developed countries (LDCs). Such protection, by raising the relative price of manufactures and thereby turning the terms of trade against the rural sector, can be a means of using price scissors to squeeze the rural sector and facilitate rapid industrialization as envisaged by Preobrazhensky (1963). The actual experiences of countries which have persisted with ISI policies over relatively long periods indicate that they have failed in terms of generating rapid economic growth and employment. These policies have also failed in reducing poverty. ¹ There is clear evidence that in the long run such policies have adversely affected the rural sector, in particular.