Assignment 6 What is the policy of import substitution Has t

Assignment #6

       What is the policy of import substitution? Has this policy worked for the developing countries? If not, what are the problems of this policy?

       Mention any two benefits of export promotion policy.

Solution

It is adopted in most of the developing countries from 1930 to 1980 for promoting industrialization by protecting domestic producers from the competition of import,.

Protection in the form of high tariff or restiction of import through quotas was applied.

This policy has not worked properly for the developing countries. It has many reasons...

With high levels of protection for domestic industries and with exchange rates that were often maintains at unrealistic levels ( usually in an effort to make imported capital goods \"Cheap) the experience of most countries practiting import substitute was that export earning grew relatively slowly .The simultaneous sharp increase in demand for import capital goods( and raw materials and replacement parts as well) led to critical foreign exchange shortages,Eventually forcing most countries to reduce imports.The cutbacks in imports in turn reduced growth rates, leading in many cases to recession.

Benifits of Export Promotion policy-

1. Earning of Foriegn Exchange-It leads to expansion of goods for the foriegn market .these goods earn foriegn exchange that can be used to facilitate development.

2.Full utilization of Plant Capicity- due to the fact that export promotion industries have a wide market ,they are able to fully utilize the existing capicity .In this way they can take advantage of large scale production .this way leads to lower production cost.

3.Greater utilization of Resources

4.Creation of Employement

5.Encouragement of efficiency in production.