Economics Comparative Advantage Questions
Import substitution is an economic policy that aims to reduce a country's dependence on imported goods by promoting the domestic production of those goods. It is based on the concept of comparative advantage, which suggests that countries should specialize in producing goods and services in which they have a lower opportunity cost compared to other countries.
In the context of import substitution, a country identifies industries or sectors in which it has a comparative advantage and focuses on developing and expanding domestic production in those areas. By doing so, the country aims to replace imported goods with domestically produced ones, thereby reducing its reliance on foreign products.
Import substitution policies often involve implementing trade barriers such as tariffs or quotas to protect domestic industries from foreign competition. Additionally, governments may provide subsidies or other forms of support to encourage the growth of domestic industries.
The goal of import substitution is to promote economic self-sufficiency and reduce the outflow of foreign exchange due to imports. However, critics argue that import substitution can lead to inefficiencies, lack of competitiveness, and limited access to foreign markets.