Question

Why were some of the problems associated with secondary ISI that countries faced as they moved from easy ISI to secondary ISI? What could they have done to avoid these pitfalls? (Chapter 10 in Cypher book).

Answer 1

Secondary ISI involved a structural transformation in the economy of these countries that created problems such as inefficiency, lack of profitability, high prices and lack of incentives for the private property rights. It happened when the governments of the countries, went for the change in taxation, subsidization and or nationalization to exert more control and try to produce what can substitute the imports. But, it started making industries to inefficient and loss making firms. Besides, trade protectionist policy, made these economies to face retaliation from the other economies and lack of support from the international organizations. So, it created problems.

Though, these issues or pitfalls could be avoided when  government forms a well planned industrial development policy and work carefully on some sectors at a time, rather working on a whole economy. Gradually, they keep rectifying the issues and increasing the output level, and their reliance over the foreign output will be slowly decreased. It will neither annoy other partner nations, nor it will bring disruptive change and chaos in the economy.