Import substitution, tourism

Import substitution is a development strategy advocating replacement of foreign imports with domestic production of goods (rarely services). This is with the aim of improving balance of payments and creating a diversified economy, which is able to create opportunities for growth and to generate welfare (Bruton 1989). Even though it is positioned under development theory, its rationale is rooted in trade theory.

Import substitution can be traced back to the eighteenth century. It gained popularity in Latin American countries in the 1950s led by a group of “structural economists” (Raul Prebisch, Celso Furtado, and Hans Singer). Among the most important arguments in favor of this strategy is one of infant industry which has comparative advantages in the goods production (Krugman and Obstfeld 2003). It suggests the use of tariffs or import quotas or other kinds of impediments to imports (restrictions on foreign investments and control over exchange rate policy) as temporary measures...