11. Arguments against (Demerits for) import substitution industrialization strategy
- 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.
- 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.
- Environmental degradation. Import substituting industries lead to environmental degradation in form of noise, air and water pollution. This negatively affects the society.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- It leads to trade wars. Setting up import substituting industries encourages retaliation by the trading partners. This leads to misunderstandings between and among countries.
CATEGORIES Economics
TAGS Dr. Bbosa Science
