Invertionist ISI

Question 1

Define import substituting industrialisation

Answer 1

A growth strategy based on domestic production of goods that were previously imported

Question 2

What is the essence of ISI

Answer 2

Develop high cost infant industries into larger firms that can reap the benefits of economies of scale

Question 3

What are the stages of ISI

Answer 3

Protect domestic production of consumer goods —> require low skilled labour
Now protect domestic production of investment and intermediate goods —> demand comes from established domestic consumer good industries
Now protect domestic production of capital goods —> demand from these comes from the established investment and intermediate goods demand
Economy now has established secondary sector

Question 4

What are the benefits of ISI

Answer 4

Diversification —> reduces LEDC specialisation in primary products
Secondary sector has links towards developing a tertiary sector which provides an outlet for a balanced economy (diversification)
LEDCs can develop comparative advantages —> MEDCs invest in R&D and new technologies —> these may trickle down to LEDCs

Question 5

What are the problems with ISI

Answer 5

Costly policy —> goods being produced at a higher cost than can be imported
Firms may require the protectionism to be efficient —> once ISI process stops they may lag behind foreign competition as they had been immune to competitive pressure for so long
MNCs may be the main benefactors —> take advantage of the protectionism and channel profits back to MEDCs
Conc on capital intensive industries —> not appropriate for LEDCs who have abundant low skilled labour —> does not create employment
Impact on primary product exports —> to encourage local manufacturing to develop the exchange rate is overvalued to ensure cheap importation of capital and intermediate goods —> increases price of exports —> farmers are less competitive in world market —> also encourages business people to move into import reliant consumer goods production making the rural sector worse off.

Question 6

What are capital goods

Answer 6

Machines that make other goods

Question 7

What are investment goods

Answer 7

Machines used to make goods e.g. clothing

Question 8

What are intermediate goods

Answer 8

Components needed on a good e.g. zips for jackets