What is the difference between import substitution policies and export-led development policies? What are the potential effects of each?
Answer: Developing countries promote industrialization by restricting imports in order to encourage local production for local consumption goods which they formerly imported. This is known as import substitution. If the protected industries do not become efficient, consumers may have to support them by paying higher prices or higher taxes. In contrast to import substitution, some countries have achieved rapid economic growth by promoting export industries, an approach known as export-led development. These countries try to develop industries for which export markets should logically exist. Industrialization may result initially in import substitution, yet export-led development of the same products may be feasible later.