Appropriate Tools for Implementing an ISI Strategy:
Important policy issues in implementing the IS1 strategy were what instruments to use and who was to be responsible for investment? Countries tended to adopt quantitative restrictions (QRs) to curtail imports. This was because QRs were believed to provide more certain signals to prospective investors in the protected industries. The impact of tariff protection could be uncertain as prices might fluctuate. (You should revise the discussion of tariffs and quotas fiom Unit 4 to help you understand this point.)
Furthermore, most countries adopted an import substitution strategy in consumer goods industries, with the private sector playing the leading role in undertaking investments. It was believed that stoppage of consumer goods imports would lead the transnational corporations (TNCs) who were supplying the imported goods fiom abroad to undertake the production of similar goods in the developing country itself, thereby solving the problems of adequacy of investible funds, technology transfer and of shortages of entrepreneurship.
A few countries, mainly India, also undertook import substitution in capital goods industries under the aegis of the state.. such state sponsored industrialisation raised more complex issues of generating sufficient investible funds as well as getting the technology to establish the plants to produce the capital goods.