Brazil's Import Substitution Strategy

This case focuses on Brazil's development strategy since World War II and on the change of the economic model following the debt crisis of the 1980s. At the time of the case Brazilian officials are deciding whether regional integration or globalization offer the best route to economic prosperity and development. This case illustrates the challenges that developing countries face in defining trade policy. It also introduces the role of regional trade blocks as an alternative to globalization. At the current time regionalism seems to be very much in vogue and seems to be much more likely to be the basis for future trade system changes than comprehensive trade treaties.

Brazil's Import Substitution Strategy

After the Great Depression of the 1930s, Brazil followed an import substitution strategy characterized by massive government investment, targeting of key industries, and protection against competition with high tariffs walls. Brazil's import-substitution strategy initially appeared to be a success, creating a temporary boom in the 1960's and 1970's that masked the strategy's longer-term implications.

Import substitution industrialization also called ISI is a trade and economic policy based on the premise that a developing country should attempt to substitute products, which it imports, mostly finished goods, with locally produced substitutes. The theory is similar to that of mercantilism in that it promotes high exports and minimal imports to increase national wealth.

As a result of import-substitution industrialization, the Brazilian economy experienced rapid growth and considerable diversification. Between 1950 and 1961, the average annual rate of growth of the gross domestic product exceeded 7 percent. Industry was the engine of growth. It had an average annual growth rate of over 9 percent between 1950 and 1961, compared with 4.5 percent for agriculture.