THE DETERMINANTS AND STRUCTURE OF IMPORT SUBSTITUTION

In Latin America, import substitution is a synonym for industrialization. Influences having an effect on this process range from the capacity to import (a supply influence) to the output-induced demand for import substitutes in production. Relative prices, changed through the exchange rate, may also switch demand from imports to import substitutes. A time-series “test” using measures of these three variables showed that the sectoral capacity to import was the most important determinant of the pattern and variation in Argentine import substitution (1951–65). Left unanswered was the relative influence that world-market conditions, home consumption of exportables, or factor movements to industry may have had on import capacity. With a mean R² of only .42, it is clear that influences other than the three used have played a role in determining Argentine import substitution. Using measures of backward (demanding) and forward (supplying) linkages, we sought to identify “key” import-substitute sectors in the industrialization process. According to Hirschman, if these sectors expand rapidly and bottlenecks are created, greater than “normal” profit opportunities may occur. The result would be that more private savings may be mobilized and investment decisions made more obvious. Although no such key sectors could be identified, this result is partly dependent on the degree of input-output aggregation, which, for Argentine data, is substantial.