Critique on Import Substitution Industrialization in Latin America

This paper critically evaluates Import Substitution Industrialization (ISI) as a development strategy in Latin America, analyzing its theoretical foundations, achievements, structural limitations, and long-term legacy. Rooted in structuralist economics and championed by figures such as Raúl Prebisch, ISI sought to break Latin America's dependence on primary commodity exports by fostering domestic industrialization through high tariffs, import quotas, and state intervention. Drawing on the analyses of Pinto and Rosales (1988), Irwin (2021), Baer (1972), and de la Torre and Ize (2019), the paper argues that while ISI delivered early industrial gains in countries such as Brazil and Mexico — generating urban employment and reducing reliance on imported consumer goods — its long-term viability was undermined by overprotectionism, lack of innovation, neglect of export-oriented sectors, and persistent social inequality. The paper contrasts ISI's trajectory with the export-led growth success of East Asian economies, and concludes that ISI's shortcomings stemmed not from its foundational premise but from inconsistent implementation and the absence of complementary reforms. It recommends a balanced approach combining selective industrial policy with export diversification, fiscal reform, and inclusive growth strategies.