Import Substitution, Export Expansion And Consumption Liberalization: A Preliminary Report

Consumer-goods industries, such as cotton textiles, started growing in Pakistan with the policy of replacing imports by domestic production. It is widely believed that in an import-competing industry any increase in domestic output represents import substitution since in its absence imports would have been necessary to maintain the same availabilities. The proposition however is incorrect. Once the production of a commodity that was formerly imported is undertaken at home, its domestic absorption frequently exceeds what would have been absorbed or demanded if the commodity had continued to be imported. If the commodity is a consumption good, the effect of this is to liberalize consumption, and the contribution to aggregate national saving and the development effort is consequently diminished.