What is the concept of import substitution?

The concept of import substitution refers to the strategy of encouraging the production of goods domestically that are typically imported. This approach is often adopted by countries to promote local industries, reduce dependency on foreign goods, and stimulate economic growth. By focusing on manufacturing products locally, a country can create jobs, foster innovation, and keep money within the local economy. Import substitution aims to build up domestic capabilities and reduce trade deficits, thus improving the overall economic resilience of the nation.

This strategy contrasts sharply with simply buying from the cheapest global sources, which may lead to further dependency on international markets. Similarly, while substituting local products for exports and eliminating imports altogether may appear related, they do not encapsulate the essence of import substitution, which specifically emphasizes domestic production as a replacement for imports rather than a broad alteration of trade practices.