7.6 International Trade Approaches

Import Substitution vs. Export-Oriented Growth

Import substitution industrialization (ISI) protects domestic industries with tariffs so a country can produce goods itself instead of importing them (e.g., Latin America mid-1900s). Export-oriented industrialization (EOI) instead encourages producing goods cheaply for foreign markets, often using special economic zones (SEZs) with tax breaks and few regulations, as seen in East Asian 'Tiger' economies.

Trade Alliances & Organizations

Countries form trade agreements/blocs to reduce tariffs and boost trade, like NAFTA/USMCA, the EU, and ASEAN. The World Trade Organization (WTO) sets global trade rules and resolves disputes. Fair trade movements try to ensure producers (often in periphery countries) get equitable prices, countering exploitation common in free trade systems.

Debt, SAPs, and Microfinance

Many developing countries borrowed heavily and became burdened by debt; institutions like the IMF and World Bank impose structural adjustment programs (SAPs), requiring privatization and reduced government spending in exchange for loans. Microfinance/microloans offer small loans to entrepreneurs, especially women, in developing countries to spur grassroots economic development without heavy debt.

Key terms

Import Substitution Industrialization (ISI)

A strategy using tariffs to protect domestic industries so a country can produce goods locally instead of importing them.

Export-Oriented Industrialization (EOI)

A strategy focused on producing goods cheaply for export, often using special economic zones to attract foreign investment.

Special Economic Zone (SEZ)

An area with tax breaks and reduced regulations designed to attract foreign business and boost exports.

Structural Adjustment Program (SAP)

Loan conditions from the IMF/World Bank requiring privatization and reduced government spending.

Microfinance

Small loans given to entrepreneurs, often women, in developing countries to promote grassroots economic development.

Try an AP-style question

Rostow's first stage of development is…

1. traditional society
2. high mass consumption
3. drive to maturity
4. takeoff