Import substitution indicates one country adopt many approaches that create high barriers to some foreign final goods in order to protect domestic industry. There are some countries in favor of import substitution development strategies especially before the 1970s. This is a government intervention to the market, could protect local infant industry and production. Gradually, domestic goods will substitute foreign goods in markets and more industrial companies will be built. In practice, politicians of developing countries often provide domestic corporations additional protection through many development strategies. By adopting import substitution strategy, country still can increase domestic employment, reduce stress in the face of global economic shocks such as economic recessions and depressions, cut in transportation fee of goods, and decrease in the trade deficit.

Historically, countries which followed the import substitution strategy built up several manufacturing corporations to produce goods that imported former. But some of them are inefficiency small companies. Initially, they produced light consumer goods such as textiles, and then focused on iron and steel. But followed the historical cases, regulations can be found that some countries with large populations or high living level in Latin America were most successful by adopting import substitution policy. For instance, Brazil, Argentina, Mexico, Chile, Uruguay. But any other poorer and smaller countries such as Honduras, Ecuador were not successful by adopting import substitution strategy, import substitution in most East Asian country in the 1960s were not successful either. Now, Let us take a look at previously successful case about import substitution strategy in Mexico. As a developing country, Mexico started to adopt import substitution strategy during the Great Depression of the 1930s which as a result of domestic industry protection. After the Second World War, this strategy was strengthened, industrialization had become explicit. In the 1950s and 1960s, Mexico raised trade barriers to another high level. During that period, Mexican industry became increasingly self-sufficient. In the next decade, its industry export were very little, it earned from foreign countries most on tourism and oil. It did build many industrial companies to produce goods for consume, but some of them are inefficient small companies. Some domestic companies became stronger then. I found some statistics in growth rates of Mexico. From 1913 to 1950, GDP growth rate in Mexico was about 3.0%, 1950-1960 was sloping upward to 6.1%, and 6.2% in 1950-1968. Dollar value of exports growth rate was about 1.6% by 1913-1937, upward to 4.7% in 1950-1967. These statistics were evidence of success in Mexican economy during this period.

Export promotion is an export-oriented development strategy which government reduces tariffs and encourages domestic companies to export manufactured goods. Its main point is to produce goods for international trade and increase exports. When a country experienced a protection phase, domestic companies were uncompetitive to foreign companies and they have become more inefficient. After the 1970s, few developing countries have adopted export-oriented strategy instead of import substitution strategy. There were four small Asian economies known as the four tigers. Japan, South Korea, Singapore, Hong Kong and Taiwan have followed export-oriented strategy for extensive periods of time, they have been very successful. Followed them, in the 1990s, more and more developing countries began to adopt export promotion policies. The table below describes five of those countries did reform.

Country Reforms in trade

Mexico Reduction in quotas began in 1985. Tariffs reduced to average 11%, a maximum rate of 20%.

Brazil Average tariff was reduced to 21% in 1992. Stringent computer protection was ended in October 1992; most NTBs were removed in March 1990.

Argentina Average tariff was reduced to 11% in 1991. The highest tariff rate was 15% points in 1992. Import restrictions were substantially eased in 1991.

China An agreement was concluded in 1992 to begin significant liberalization of imports, including a phase out of almost 90% of all NTBs in 1998.

India Restrictive import licensing requirements covering 70% of all imports were eliminated in 1992. By 1993, the average peak tariff rate was reduced to 85%.