Import substitution: replace imports with protected home production.
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Import substitution: for and against
Infant industries grow
Tariffs shield new firms until they are big enough to compete.
Jobs and foreign exchange
Goods made at home save dollars spent on imports.
But firms get lazy
With no foreign rivals, costs rise and quality falls.
And buyers pay more
Higher prices, less choice, and other countries may retaliate.
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Other strategies look outward, to world markets.
Looking outward
| Strategy | What the government does | Example |
|---|---|---|
| Export promotion | Helps firms sell abroad: export zones, cheap credit, a low exchange rate | South Korea and Taiwan from the 1960s |
| Economic integration | Joins a trade agreement for duty-free access to bigger markets | The African Continental Free Trade Area, trading since 2021 |
| Diversification | Moves from one or two raw materials into manufacturing and services | Malaysia, from rubber and tin to electronics |
The points to remember
- Export promotion: sell to the world, not just at home.
- Diversification spreads the risk of one product's price falling.
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Paper 3 asked this in the specimen paper, for 10 marks.
Coffee earns 70% of Country X's export revenue, and world coffee prices are expected to fall by 20% next year.
Using the data provided and your knowledge of economics, recommend a policy the government of Country X could introduce in response to the expected fall in the world price of coffee.
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