The political economy of import substitution and subsequent trade liberalization: The case of Turkey

Abstract

In almost all developing countries early stages of industrialization are marked by import substitution policies., In an attempt to improve standards of living and to enhance output growth, indigenous industrialization was promoted by barriers against foreign competition. Inward industrialization was further assumed to free developing countries from their dependence on industrialized countries and to pave the way to efficiency gains based on local technological development. The pure economic performance of countries pursuing import substitution policies and the successes of countries following a more outward-oriented industrialization path have cast substantial doubt on the wisdom of inward-oriented industrialization strategies. Despite the fairly obvious economic advantages of export-oriented industrialization few developing countries have actually changed their initial inward-oriented industrialization strategies . This adherence of governments and politicians to obvious non-optimal economic policies raises fundamental issues on the determinants of economic policy-making. Yet, there are no studies to date analyzing the economic and political roots, which lead to the choice of a specific industrialization strategy in developing countries.