How did import-substitution industrialization affect Latin America's economy?

Import-substitution industrialisation (ISI) led to economic growth but also increased inequality and debt in Latin America.

ISI was a policy adopted by many Latin American countries in the mid-20th century to stimulate their economies. The idea was to reduce dependency on foreign imports and develop domestic industries by substituting them with locally produced goods. This was achieved through protective tariffs, import quotas, and government subsidies for local industries. Initially, this strategy led to significant economic growth in countries like Brazil, Argentina, and Mexico. The industrial sector expanded, creating jobs and boosting domestic consumption.

However, the benefits of ISI were not evenly distributed. The policy tended to favour urban areas and the industrial sector, leading to increased income inequality. Rural areas and the agricultural sector were often neglected, causing rural-urban migration and exacerbating social tensions. Moreover, the focus on domestic consumption meant that these countries did not develop a strong export sector. This made their economies vulnerable to fluctuations in global commodity prices.

Furthermore, ISI led to a significant increase in public debt. To finance their industrialisation policies, governments often resorted to borrowing from abroad. This made Latin American economies vulnerable to changes in international interest rates and exchange rates. When the global economy entered a recession in the 1980s, many of these countries found themselves unable to repay their debts, leading to the so-called 'debt crisis'.

In addition, ISI often resulted in inefficient industries. Protected from foreign competition, domestic industries had little incentive to innovate or improve productivity. This led to a lack of competitiveness in the global market. When protective measures were eventually lifted, many of these industries struggled to survive.

In conclusion, while ISI did stimulate economic growth in Latin America, it also led to increased inequality, debt, and economic vulnerability. The policy's focus on domestic consumption and neglect of the export sector made these economies susceptible to global economic fluctuations. Moreover, the protection of domestic industries often resulted in inefficiency and a lack of competitiveness.