Less developed countries have often adopted two alternative strategies in their quest for industrialization, i.e., import substitution and export promotion strategies. Import substitution strategies also referred to as inward-looking strategies advocate for production of goods in the host country through various means including subsidies, tariffs and import quotas. In contrast, export promotion strategies also referred to as outward-looking strategies focus on a nation’s participation in international trade by promoting the internal production of goods and services especially in industries with a potential comparative advantage. This paper will evaluate the implementation of both strategies in two countries Brazil and Japan and further suggest the most suitable approach to foster industrialization in Nigeria.
Most developing nations in Latin America including Brazil committed to the import substitution strategy to foster industrialization. This strategy involves the erection of high barriers of trade to external goods to discourage their importation and encourage domestic production. A broad range of control measures was implemented in Brazil including high tariffs and import quotas (Oman, 111). The Brazilian government focused on improving industrialization by implementing protectionist policies on industries perceived as fundamental including chemical, heavy machinery, cement, cellulose, automobile, aluminum and steel industries. However, this resulted in a demand deficiency as goods produced domestically were expensive. The high costs of goods further resulted in declined consumptions of goods and services. The low demand because of a small domestic market ensured the industries did not take advantage of economies of scale. All these factors resulted in lower profits, high costs and inefficient production. Consequently, the implementation of import substitution policies was unsuccessful in Brazil.
Meanwhile, nations in East Asia including Japan implemented outward-looking strategies commonly referred to as export promotion strategies. Unlike import substitution strategies, export promotion strategies promote working within the global economic system (Baraia, 113). The government often targets sectors in which it has a potential comparative advantage. The Japanese government has implemented export promotion strategies over the years. The government realized that to industrialize, it needed to generate more exports to pay for the imports. As it imported raw materials, Japan had to add value to them and export vast amounts to factor for the import costs. Japan hence focused on crucial manufacturing industries including iron and steel, shipbuilding, chemicals, merchant marine, electrical equipment, electronics and nuclear power. However, facing stiff competition from China and South Korea concerning production efficiency from labor costs, Japan has now focused on improved technology and robotics to enhance production. In as much as Japan has embraced an outward-looking strategy to boost its exports, it has still embraced protectionist tendencies for some of its sectors such as the agricultural sector to prevent foreign competition.
Nigeria, on the other hand, is a yet to be an industrialized nation. Nigeria is primarily an exporter of commodities and raw materials. Over 70% of government revenues and 90% of its export earnings are derived from crude oil (US Department of State, 1). The country further has a significant pool of well-educated citizens with technological competence. Considering all these factors, the government should focus on implementing export promotion strategies to foster industrialization in Nigeria. Since Nigeria has a comparative advantage in the oil sector, it should consider developing firms related to the industry and export finished goods as opposed to crude oil.
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