Import Substitution in Latin America

From the 1930s to the 1980s, many Latin American governments pursued import substitution industrialization (ISI): protecting domestic industries with tariffs, quotas and exchange controls so that local factories could replace imported manufactured goods. The approach grew from experience, since the Depression and Second World War had cut off imports, and from Prebisch's argument about commodity dependence.

Early results were impressive: Brazil and Mexico built steel, chemical and car industries and grew rapidly, with Mexico averaging around 6 percent annual growth from the 1940s to 1970 and Brazil enjoying a 'miracle' boom from 1968 to 1973. Over time, problems emerged. Protected firms often stayed inefficient, consumers paid high prices, exports lagged and countries still needed foreign currency to import machinery and fuel. Governments increasingly borrowed abroad to fill the gap, setting the stage for the 1982 debt crisis.

Historians debate whether ISI failed in itself or was abandoned before it could mature into export-oriented industry.