Monograph on theoretical and practical aspects of import substitution policy in developing countries and least developed countries - examines import substitution as a source of industrial growth and as a feasible strategy for improving those countries' trade and balance of payments. Bibliography pp. 109 to 119, graphs and statistical tables.

The purpose of this research paper is to try to clarify and evaluate the major issues and arguments in the debate on Import Substitution Industrialization Strategy (ISI) between the neoclassical economists and the development economists. In particular, it will focus on some basic underlying models employed by the two schools of thought, rather than on specific policy recommendations given by either school. It will conclude that the critiques against ISI from the neoclassical economists are based on a static equilibrium model, which can not fully comprehend the dynamic relationship between growth and ISI at a macroeconomic level. This paper starts by examining the historical background and formative influences of ISI, then goes on to compare and contrast the structuralist rationales for ISI and neoclassical rationales against it. The conclusion I reached is that the fundamental rationales behind ISI-- the infant industry argument, external economies and linkages effects--remain intellectually valid. The issue of terms of trade has important relevance to development economics but should be studied in a different context. The general conclusion of this paper is that import substitution as an industrialization strategy remains viable and may be of great importance or less developed countries that want to catch up economically with industrialized countries.

The analysis and adjustment of government expenditure in less developed countries is discussed. A better balance between supply and demand in the public sector can be achieved by raising budgetary revenues, or by cutting budgetary expenditures, or by some combination of both. The IMF devotes considerable attention to assisting countries to make their tax systems more buoyant, to reduce the disincentive effects of taxation, and to administer their tax systems more effectively. Government expenditure policies are often important elements in programs of external adjustment supported by the IMF.