AN EXERCISE IN WORLDMAKING 2009 - ISS

130 TISKA YUMEIDA
economies of scale while reducing those of its foreign competitor. Hence
engendering decreasing costs.
Import Substitution Industrialization (ISI) and Export Promotion Industrialization
(EPI) are the policies which support protection policy of
infant industry. ISI is a set of trade and economic policies which make a
country try to reduce its dependency from foreign products through local
products. This policy suggests that state should induce industrialization
by government spending. It was adopted by some highly industrialized
countries, such as the United States (US) until the 1940s. Many
forms of ISI that can be adopted including subsidies, protective barrier
to trade, such as tariffs, an overvalued currency to help manufacturers
import capital goods (e.g. heavy machinery), and not encouraging foreign
direct investment. Through EPI governments help exporters to participate
in exhibitions abroad to promote their products in foreign markets
and sends delegations to export markets to explore new market and develop
the traditional markets. But, as argued by Bardhan and Udry (1999:
190), a time inconsistency problem that afflict such policies in most
countries is that once protected, the infant sometimes refuses to grow
and face competition, and instead concentrates on lobbying for prolonged
protection.
3.2 Policy Implications of the New Growth Theory
The new growth theory emphasizes the importance of increasing returns
to the overall opportunities for economic growth. Increasing returns imply
tremendous opportunities for growth, and the need for policy to deal
with resulting monopolies and market imperfections. The principal objective
of such policies would be to upgrade a country’s production and
export pattern by successively moving up the technology and skill ladder
of products and taking into account the dynamic demand potential in
world markets (Mayer 1996). This objective could be achieved by accumulation
of human capital which enforces an increasing of country’s
productivity.
Mayer (1996: 21) states that successful accumulation of human capital
is not just a matter of sending people to school. Several additional factors
need to be taken into account when designing a policy strategy with
a view to supporting the accumulation of human capital. Giving strong
attention to the quality of education is one factor. Skill acquisition at
school also depends on the quality of learning, rather than just on the