Unveiling the Myth of Import Substitution Policy in Pakistan

Abstract

Due to the import substitution policy, domestic firms and end users have to pay a higher price for the imported intermediate inputs, and final consumption items compared to the international market prices. The data show that the use of imported intermediate inputs has increased in agriculture, manufacturing, and services sectors over the last two decades in Pakistan. Clearly, the import substitution policy is unable to meet its primary objectives of substituting expensive imported items for cheaper domestic intermediate and final consumption items rather it is leading toward an unsustainable economic environment for domestic and international trade.