It is argued that import substitution is a misguided trade policy ...

[cnetterville]

It is argued that import substitution is a misguided trade policy if the intent is to promote long-term economic growth. Explain the reasons underlying this argument.
 
  What will be an ideal response?

Question 2

Intraindustry trade refers to
 
  A) international trade of products made within the same industry.
  B) international trade of products made across different industries.
  C) trade that occurs as a result of comparative advantage.
  D) the exchange of non-similar items.
  E) trade that occurs mostly within developing countries.

[paavo]

Answer to Question 1

Import substitution promotes that economic activity in which the country is relatively inefficient. This lowers the real income at any given time and decreases the resources which can be used for investment purposes, hence lower growth rates. An additional answer is that import substitution by creating a protected domestic market fails to provide incentives to produce high, or world-class quality-which means this country, cannot market in foreign countries. With such a (perceived) limited market, endogenous economic growth will not be forthcoming. Finally, it may be that exposure to world competition has its own dynamic effect promoting economic growth.

Answer to Question 2

A

[cnetterville]

Thank you

[paavo]

Happy to help you