How policy of import substitution lead to reduced foreign exchange reserves??
Dear student,
Import substitution implies domestically producing the goods that were earlier imported. Such a policy is generally adopted by the developing countries to protect its domestic producers from the foreign competitors. However, the developing countries are often not well-endowed with the raw material and the sophisticated technology that are required for the production of these goods. Consequently, the developing countries end-up importing these (required) raw material and technology, which are often of higher costs as compared to the cost associated with the importing of already produced goods. Moreover, due to lack of competent and skilled human capital in the developing countries, often there exists wastage, misallocation and/or underutilisation of the expensive technology so imported. Hence, in this manner, the imports of modern technology and sophisticated machines put an excessive burden on the scare foreign exchange reserves of the developing countries, thereby, resulted in heavy drain of foreign exchange.
Regards
Dear student,
Import substitution implies domestically producing the goods that were earlier imported. Such a policy is generally adopted by the developing countries to protect its domestic producers from the foreign competitors. However, the developing countries are often not well-endowed with the raw material and the sophisticated technology that are required for the production of these goods. Consequently, the developing countries end-up importing these (required) raw material and technology, which are often of higher costs as compared to the cost associated with the importing of already produced goods. Moreover, due to lack of competent and skilled human capital in the developing countries, often there exists wastage, misallocation and/or underutilisation of the expensive technology so imported. Hence, in this manner, the imports of modern technology and sophisticated machines put an excessive burden on the scare foreign exchange reserves of the developing countries, thereby, resulted in heavy drain of foreign exchange.
Regards
