Most governments first made goods to replace imports, then switched to making goods for export. The timing and success of the switch differed.
Import-substitution industrialisation (ISI) meant protecting local factories with tariffs and quotas, so they could make goods that had been imported. The Philippines, Indonesia, Thailand and Malaya all tried it in the 1950s and 1960s.
ISI had limits. Home markets were small, protected firms were often inefficient, and they still needed imported machines and materials. Growth slowed once the easy imports had been replaced.
Export-oriented industrialisation (EOI) meant attracting firms, often multinationals, to make goods for world markets. Singapore made the switch from the mid-1960s. Malaysia set up free trade zones from 1971, and electronics factories came to Penang.
Others switched later. Thailand turned more strongly to exports in the 1980s, and Japanese investment poured in after 1985. Indonesia turned to manufactured exports after oil prices fell in the mid-1980s, devaluing its currency and cutting red tape.
The path was not always straight. Under Marcos, the Philippines kept many protected industries, controlled by his cronies. In the 1980s Malaysia launched state-led heavy industries, including the national car, Proton. Vietnam began opening to foreign investment only after 1986.
- ISI
- Protect local firms to replace imports.
- EOI
- Attract firms to make goods for export.
- Malaysia's free trade zones
- From 1971.
Worked example: Comparing the switch
When and how did countries switch to EOI?
- Singapore: early and complete, from the mid-1960s.
- Malaysia: free trade zones from 1971, plus heavy industry in the 1980s.
- Thailand and Indonesia: mainly in the 1980s.
- The Philippines: slow and incomplete.
Watch out for this
Every country moved from ISI to EOI at the same time.
Singapore switched in the 1960s, Malaysia in the 1970s, and Thailand and Indonesia in the 1980s, while the Philippines kept many protected industries.
Check your understanding
Why did ISI run into problems?
- Home markets were small and protected firms were often inefficient.
- It made exports too cheap.
- It was banned by the UN.