11 Arguments against (Demerits for) import substitution   industrialization   strategy

11 Arguments against (Demerits for) import substitution   industrialization   strategy

  1. It leads to rural-urban migration. Most  import  substituting   industries   are urban  based  and  this encourages   people   to  move   from  rural  areas  to  urban   centers.   This  leads   to  development    of slums,  open  urban  unemployment,    increased  crime  rate  and poor  living  conditions   in general.
  2. It leads to technological    unemployment.     The  strategy   encourages   the  use  of  capital  intensive techniques  of   production     which    in   the   long    run    replaces    labour    hence    technological unemployment                This  is true especially  with foreign  investors   who  prefer-to use  capital  intensive techniques   of production.
  3. Environmental degradation. Import substituting   industries   lead to environmental    degradation   in form of noise, air and water pollution. This negatively   affects the society.
  4. It promotes    uneven regional   development   in economy.   This is due to the concentration   of most of the import substituting   industries in urban areas.  This leads to under development   of rural areas.
  5. It increases   economic   dependence    of the country.   This  is  due  to  a  large  number   of  import substituting    industries   being   owned   by  foreign   investors    and  dependence    on  imported    raw materials.
  6. It promotes    profit    repatriation.     Some   import   substituting    industries    are owned   by   foreign investors and this promotes capital flight hence limited capital accumulation   in the economy.
  7.    It leads  to poor   standards   of  living:  This  is due  to  production    of  poor  quality   and  expensive goods  and services  as compared  to the imported  commodities.
  8. It leads to balance of payment   problems   in the country. This is due to increased importation   of expensive   factor inputs in form of raw materials, intermediate   goods and expatriates
  9. It reduces government    revenue.   The government   loses revenue   in form of subsidization   and tax holidays                          given   to the infant   import   substituting    industries.    This   makes   it difficult   for the government   to meet her recurrent and development   expenditures.
  10. It leads to the emergency of local monopolies.   Import substituting   industries   are protected   from foreign competition   by the government   at an infant stage.  In the long run, such industries tend to monopolize   production   activities hence exploiting   consumers   by restricting   output and charging high prices.
  11. It leads to trade wars.  Setting up import substituting   industries   encourages   retaliation   by the trading partners.  This leads to misunderstandings   between and among countries.
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