Import Substitution

The industrialisation by import substitution (IS) is empirically verifiable when the growth of industrial production occurs with expansion of internal demand simultaneously with a reduction of industrial import coefficient (relative participation of imports in the industrial product). In general import substitution has positively contributed to the growth of internal production, especially at the initial phases of industrialisation. In Brazil’s case, it has been particularly important between the beginning of the 30`s and the end of the 1970’s.

By the end of this period, however, its contribution to the growth of industrial production was already only marginal. According to data from the Institute of Applied Economic Research (IPEA) for 1975-80, the growth of the manufacturing industry’s production in this period was explained mainly by the increase in internal demand (77.3%), with the export expansion having contributed with 14.4% and import substitution with only 8.3%. Although this last factor was still relatively important in terms of specific industries, such as metallurgical products, mechanical, electrical and communications equipment and cellulose / paper. From then on import substitution has practically lost its relevance as a source of growth for the industrial production.

This takes us to two important considerations:

1) that the internal demand has a predominant role as source of variation of the industrial product. Its dynamistic effect, however, might occur in the presence of an intensification of the IS (reduction of the import coefficient) as well as a reduction of the IS (increase of the import coefficient) or even a neutral IS process (constant import coefficient); and

2) the IS and the export expansions as sources of growth are not excluding processes but simultaneous and linked ones, the IS usually being a previous effort on the construction of an industrial basis and technological apprenticeship.