An Analysis of Import Substitution in a Developing Economy: The Case of Jamaica

Author(s): John Gafar

Source: Caribbean Studies, Vol. 18, No. 3/4 (Oct., 1978 - Jan., 1979), pp. 139-156
Published by: Institute of Caribbean Studies, UPR, Rio Piedras Campus
Stable URL: http://www.jstor.org/stable/25612845
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 II. RESEARCH COMMENTARIES

AN ANALYSIS OF IMPORT SUBSTITUTION IN A DEVELOPING

ECONOMY: THE CASE OF JAMAICA

John Gafar*

Persistent deficits in the trade and payments balance are characteristic

features of most developing countries. In Jamaica, as in other Caribbean
countries, import substitution has been the policy pursued in the post-war
era to reduce the deficits in the balance of payments. The argument for
import substitution is based on the presumption that it would contribute
to self-sufficiency, thereby reducing the dependence on and the vulnerabi
lity to foreign trade and external forces. The theoretical advocacy of the
import substitution industrialization strategy is associated with the
writings of Raul Prebisch1 and W. Arthur Lewis.2 The essence of Prebisch's
analysis is that the benefits of technical progress in the developing
countries have been channelled to the developed countries in the form of
lower commodity prices whereas, on the other hand, prices of manufac
tured goods have been constantly rising due to strong trade union
pressures and monopolistic factor and product markets which dominate
the developed countries. There are theoretical and empirical criticisms of
the Singer-Prebisch thesis, such as those of Harberler3 and Kindleberger.4
Sir Arthur Lewis argued that since there is surplus labor in these economies,
efforts should be made to develop a structure of exports that is
labor-intensive, thereby reducing the level of unemployment and also
improving the terms of trade. But perhaps the most compelling reason

* Lecturer, Department of Economics, University of the West Indies, Mona,

Jamaica.
1. R. Prebisch "Commercial Policy in the Underdeveloped Countries," American
Economic Review 49, no. 2 (1959).
2. W. Arthur Lewis, "The Industrialization of the British West Indies," Caribbean
Economic Review (May 1950).
3. G. Harberler, "Terms of Trade and Economic Development," in Economic
Development for Latin America, ed. Howard S. Ellis (New York: Macmillan, 1961).
4. CP. Kindleberger, The Terms of Trade: A European Case Study (Boston:
MIT Press, 1956).

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 140 II. RESEARCH COMMENTARIES

for import substitution is that such a policy will conserve scarce foreign
exchange reserves.
Import substitution industrialization has been encouraged and pursued
behind a wall of generous protectionist policies such as negative lists,
discriminatory tariffs and quotas. Incentives legislation has been enacted
to provide exemptions from income tax, duty free raw materials and
capital goods imports, and accelerated depreciation allowances.5 The
pattern and form of industrial policy adopted in Jamaica as well as in
other Caribbean countries is similar to that of the Latin American
countries.6
Import substitution began in the easiest area?the assembly of
consumer goods. This form of industrialization has led to the establish
ment of a number of screw-driver type industries which are in some
instances subsidiaries of transnational firms. In subsequent stages import
substitution industrialization proceeded to intermediate goods (for
example, chemicals). The tendency of import substitution is to concen
trate on non-essential, luxury type goods. This tendency arises from the
fact that quantitative controls imposed on imported non-essential goods
make production of these goods profitable. The relative profitability of
investment in non-essential goods is a result of direct government policies.
Import substitution industrialization based on the production of
consumer type goods poses severe problems for economic planning. In the
first place, domestic production of consumer goods replaces only part of
the value added of those goods that were previously imported. Conse
quently, there is a derived demand for imports of raw materials, capital
goods and other inputs, which increases rapidly and exerts tremendous
pressure on the available foreign exchange and on the balance of payments.

5. For a discussion of the history of Incentives Legislation Scheme, see H.A.

Brown, "The Import Substitution Process: A Model 01 the Jamaican Economy,
1957-1966." (Ph.D. Thesis, University of the West Indies, Mona, Jamaica, 1970).
6. A. O. Hirschman, "The Political Economy of Importing Substituting
Industrialisation in Latin America," The Quarterly Journal of Economics 82 (1968): 5.
Hirschman, argues that the substitution of local manufacturers for imported goods
has been pursued "as a matter of deliberate development policy, carried out no longer
just by means of protective duties, but through a wide array of credit and fiscal policy
devices, as well as through direct action: the establishment of state-owned industries or,
increasingly, of development corporations or banks which are entrusted with the
promotion of specific ventures."

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 CARIBBEAN STUDIES / VOL. 18, NOS. 3 AND 4 141

Second, as Soligo and Stern argue:

So long as consumer goods must be imported, the extreme scarcity of foreign

exchante acts as an effective constraint to the expansion of consumption. Once
consumer-goods industries have been established domestically, the discipline
enforced by the supply of foreign exchange is to some extent removed.7

And finally, Johnson notes a further problem associated with industrial

growth based on consumer goods. He observes that:

. . .the excess cost of import substitution may be high, appreciably higher than
is implied by the tariff rates or the excess of domestic over foreign prices.8

It has been demonstrated, as in the Bhagwati-Desai study,9 that the

empirical estimates of effective rates of tariff protection in import substi
tution industries have been fairly bizarre, often exceeding 100 percent. In
some industries there has been negative value added. Several explanations
have been offered by Bhagwati-Desai10 for the phenomenon of negative
value added. First, negative value added may come as a consequence of
inefficient investment decisions based on protectionist policies such as
tariffs, quotas, exchange controls, and subsidies, which are a direct cost
to the economy. Second, negative value added may occur in the short-run
reflecting losses which for a number of reasons enable a firm to continue
production even though it does not meet its variable cost. Third,.protec
tionist policies create sheltered markets and confer on the firm monopoly
power which enables it to earn above normal profits. Because of this, a
foreign firm or its subsidiary earning abnormal profits may prefer to raise
its imported price through a number of devices, for example, over-invoic
ing, thus reflecting a loss on its operations. The net result is that the local
value added is negative but it is incorrect to conclude that the local value
added is negative but it is incorrect to conclude that the local enterprise is
inefficient or lacks comparative advantage. Bhagwati-Desai have found, in

7. R. Soligo and R.J. Stern, "Tariff Protection, Import Substitution and

Investment Efficiency," in Studies on Commercial Policy and Economic Growth, ed.
Nural Islam (Pakistan: The Pakistan Institute of Development Economics, 1970),
p.247.
8. H.G. Johnson, "Tariffs and Economic Development," Journal of Development
Studies (October 1964).
9. J.N. Bhagwati & P. Desai, India Planning for Industrialisation: Industrialisation
and Trade Policies since 1951 (London: Oxford University Press, 1970).
10. Ibid., pp. 362-67.

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 142 II. RESEARCH COMMENTARIES

the case of India, thta because of such a policy by the firms the c.i.f. cost
of importing a Fiat car exceeded that of a locally finished one. We do not
have any evidence, but on the basis of casual observation we suspect that
such a situation prevails in the Caribbean. Fourth, the phenomenon of
negative value may result because components which account for a high
value of the finished product may cost more to import c.i.f. due to the
extra handling and shipping costs. Thus, negative value added demon
strates that investments have been unproductively employed. Finally, the
phenomenon of negative value added may result because of'explicit
subsidies on exports. In this case the f.o.b. price of manufactured goods
may well be below the cost of production when the subsidized inputs are
evaluated at competitive world prices. In such a situation it is prudent to
remove the subsidies thus forcing the industry to use different techniques
of production to enable it to be economically viable.
From the foregoing discussion it follows that if import substitution
continues to operate behind protected markets-national and regional-it
would result in an inappropriate structure of industrial growth charac
terized by high costs, inefficiency and misallocation of investment
funds.11
This article aims at presenting some quantitative evidence to evaluate
the performance of import substitution in Jamaica during the period
1954-1972. It is hoped that the results of this study will provide a basis
for evaluating import substitution within the Caribbean Community
(CARICOM).
I. IMPORT SUBSTITUTION AND INDUSTRIAL GROWTH

It was argued earlier and in Brown that the growth of manufacturing

(industrial) output is influenced by the import substitution policy.12 The
data contained in Table 1 illustrate the importance of the manufacturing
sector in the Jamaican economy.
As is shown in Table 1, manufacturing output increased from $39.2
million in 1954 to $135.2 million in 1972, or an annual average growth
rate of 6.5% . Compared for the same period, GDP increased from $296.9
million in 1954 to $902.4 million in 1972, or an annual average growth

11. Soligo & Stern, "Tariff Protection." Soligo and Stern found that the implicit
rate of protection exceeded the value added which is higher for the consumer goods
industries and that the protection exceeded the contribution to value added.
12. Brown, "The Import Substitution Process."

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 CARIBBEAN STUDIES / VOL. 18, NOS. 3 AND 4 143

rate of 5.7% . In order to place these changes in their proper perspective, it

is important to concentrate on the sectoral importance of manufacturing
output, The percentage contribution of manufacturing -output to GDP
increased slightly, from 13.2% in 1954 to 14.99% in 1972 which suggests
that policies pursued did not provide the necessary dynamics for indus
trializing or to effect structural changes in the economy.

TABLE 1

GROSS DOMESTIC PRODUCT AT FACTOR COST

(1965 PRICES)
J$ Million

_1954 1957 1962 1968 1972 1954-72

Manufacturing 39.2 56.2 68.2 100.7 135.2 ?
GDP 296.0 414.2 494.7 664.8 902.4 ?
Percentage Distribution
Manufacturing 13.20 13.66 13.79 15.15 14.
Growth Rates

Manufacturing 12.6 4.1 7.5 7.4 6.5 ?

GDP 1 1.7 4.0 5.6 6.2 5.7 ?

II. IMPORT SUBSTITUTION AND FOREIGN TRA

In his seminal contribution Chenery's evidence sugg

important result of import substitution is the change
commodity trade.13 The composition and pattern

/? I3' ? 9?en.ery> "Patte s of Industrial Growth," America

(September 1970).

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 144 II. RESEARCH COMMENTARIES

because new goods are imported and old ones are replaced with domestic
production. Table 2 presents details of this.
As is shown in Table 2, imports have undergone structural changes.
The composition of imports has affected the internal relative prices which
in turn have influenced the agricultural and industrial development of the
country. The share of consumer goods has been declining because import
substitution is concentrated in the production of consumer goods type
industries. Raw materials and intermediate imported goods share has
remained constant because some of these inputs are non-competitive and
also because the low tariffs on these goods make it more profitable to
import them than to import substitutes. The share of scarce capital goods
imports have been rising because of investments in industrial sites, import
substituting industries and in the export industries of tourism and bauxite
alumina.
The import coefficient has remained constant, averaging 48% for
1954-1972. This result should not be viewed with alarm for, as Winston
points out, "the results in 'Chenery's Patterns' show that there is no
significant change in aggregated M/GNP despite the very real changes in
similar ratios disaggregated for industries and sectors among the countries
studied."14 Without claiming to disprove the success or failure of the
import substitution in reducing the dependence on foreign trade, the stable
import coefficient may be due to capital expansion, inflows of foreign
investment, loans or grant's.
Exports are highly concentrated in a few commodities: bauxite
alumina, sugar, bananas and citrus. Concentration of commodity exports
can lead to instability in export earnings; fluctuations in government
revenues, investment and employment, unstable export prices and
deterioration of the terms of trade. The percentage contribution of
exports of the traditional primary commodities (sugar, bananas, pimento,
coffee and citrus) has been declining rapidly, from 70% in 1954 to 25% in
1972. Exports of crude materials (mainly bauxite-alumina) have domi
nated the economy. The percentage contribution of exports of manufac
tured goods has been uneven and insignificant; hence, this indicates that the
industrial strategy pursued did not diversify appreciably the structure of
commodity exports. This failure reflects the fact that either locally
manufactured exports are not competitive on the world market, or that
the import substitution process is concerned mainly with production for a
highly protected local market The export coefficient (X/GNP) grew from

14. G.C. Winston "Notes on the Concept of Import Substitution," in Studies on

Commercial Policy, ed. Nural Islam (Pakistan: The Pakistan Institute of Development
Economics), p. 113.

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 >

_M

-_?- p
-.-.-?? ?

1954/55 1957/58 1962/63 1967/68 1971/72 1954/72 gj

Intermediate Goods 32.3 33.6 33.3 32.3 32.2 32.2 ^

STRUCTURE OF FOREIGN TRADE OF JAMAICA

TABLE 2

ts (M) 100.0 B.100.0 100.0

47.0 48.5100.0
45.0 47.5 100.0
47.5 48.0 ? 100.0 <
D. X/GNP(%)a 29.5 32.0 38.0 40.0 39.5 37.0

M/GNP(%)a
1. Consumer Goods 42.3 37.8 40.6 34.6 35.6 37.9 g 3. Capital Goods 25.3 29.8 26.1 31.1 32.2 29.9 -
Total Exports (X) 100.0 100.0 100.0 100.0 100.0 100.0 *

0, 1 + 4: Primary Goods 70.9 49.52+44.7

3: Crude
38.0 Materials
24.6 44.2 23.5
*w 45.5 44.8 53.1 67.7 48.5 >
5 - 8: Manufactures 5.6 5.0 10.5 8.9 7.7 7.3 O

C. SITC Sections ? Exports ? % Distribution (Current Prices) ?

E. X/M (%) at Current Prices 77.5 74.8 85.6 66.8 59.7 71.0

A. Imports - % Distribution (Current Prices) ^

2. Raw Materials & g

a. Based on 1965 prices.

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 146 II. RESEARCH COMMENTARIES

29.5% in 1954/55 to 39.5% in 1971/72, averaging 37%for 1954-1972.

This shows that during 1954-1972 the economy became increasingly more
vulnerable to the external forces of world trade.
The trade balance (X/M) has continued to deteriorate. In 1954
commodity exports accounted for 82% of the value of commodity
imports, but by 1972 this share fell to 59%, a result opposite to the
objectives of the import substitution strategy. The increasing deficits in
trade for 1954-1972 were augmented with earnings from tourism (the
second largest earner of foreign exchange in 1972), foreign direct invest
ment, loans and grants.

III. MEASURES OF IMPORT SUBSTITUTION

The following will be used in the discussion:

O = domestic gross output (of some industry)

M = imports of competing goods
D = domestic final demand
W = domestic intermediate demand
X = exports
Z = total supply (= total demand)
Subscripts 1 and 2 represent two points in time.

Let u = O/Z = domestic output coefficient

m = M/Z = import coefficient
x = X/Z = export coefficient
There is a basic accounting identity which can be expressed as
Z = 0+M = W+ D + X

Measure I: (Desai1 5 and Bhagwati-Desai16)

There is positive import substitution if the differ
coefficient is negative:

(ni2-nii) <0 (1)

15. P. Desai, "Alternative Measures of Import Substitutio

Papers (November 1969).
16. Bhagwati & Desai, India, Planning for Industrialization.

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 CARIBBEAN STUDIES / VOL. 18, NOS. 3 AND 4 147

Measure I (a)

Alternatively, there is positive import substitution if

(mi-m2) >0 (la)
Measure II: (Desai17 and Bhagwati-Desai1 8)
There exists positive import substitution if the percentage change in
the import coefficient is negative:

(m2 - mx) /ml <0 (2)

Measure II (a)
Alternatively, there is positive import substitution if

(mt - m2) /ml >0 (2a)

Measure III: (Chenery19 and Lewis-Soligo20)
Import substitution is defined as "the difference between growth in
output with no change in the import ratio and the actual growth."21

Symbolically, this is

X = (u2 -ux)Z2 (3)

Note that
u = O/Z
It follows that (4)
0 = uZ = u(D+W+X)
It therefore follows that a change in O can be expressed as
dO = udZ + Zdu (5)
= u(dD + dW + dX) + Zdu

17. Desai, "Alternative Measures."

18. Bhagwati & Desai, India, Planning for Industrialization.
19. Chenery, "Patterns of Industrial Growth."
20. Stephen R. Lewis, Jr. & R. Soligo, "Growth and Structural Changes in
Pakistan's Manufacturing Industry 1954-1964," Pakistan Development Review
(Spring 1965).
21. Chenery, Patterns of Industrial Growth, p. 641.

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 148 II. RESEARCH COMMENTARIES

For finite changes Eq. 5 can be written as

AO = (AD + AW) + i^AX + Z2 (u2 - ux) (6)

The first term, ui (AD + AW), represents the growth of output that may
be attributed to expansion of domestic demand (EDD). The second term,
ui AX, represents growth of output attributed to export expansion (EE).
The third term, (u2 - Ui) Z2, is the import substitution effect which may
be loosely defined as the process of producing domestic goods which were
previously imported. Thus, Eq. 6 may be written as

AO = EDD + EE + IS (7)

The contribution of import substitution to the growth of the industry is

given by Measure III.

B = X/AO (8)
Eq. (8) can be written as

B = [02 -(Ox Z2/Z1)]/A O

We now demonstrate the relatio

Consider Measure II. It can b
this measure can be expressed a

-S2 [02 -(O, Z2IZ1j\lm1

For Measure II to be negative

implies that Measure III is posit
positive Measure III.

Consider Measure I. This can be

-[02 -(Ox zjz.n/z, (11

Examination of relationships

22. The discussion which follows is

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 CARIBBEAN STUDIES / VOL. 18, NOS. 3 AND 4 149

(Measure I), will indicate that the size or magnitude of import substitution
will not be the same because of differences in weights. In Measure III the
weight is 1/A O; in Measure II it is - Z1/m1; and in Measure I, - 1/Z2. It
follows, therefore, that not only the size but the rankings of different
industries according to import substitution will be different.

Empirical Estimates

The Appendix discusses the data sources and methodology adopted in

combining trade data with local production data based on national income
estimates.
Table 3 summarizes the sources of growth (EDD, EE and IS) of
selected manufactured industries for the periods 1960-65, 1965-70 and
1960-75 respectively. Examination of the data reveals that during
1960-70, expansion of domestic demand was for nearly 60% of the
growth of output in the industries. Production of manufactured goods in
nearly all of the industries is geared to meet local demand. Export
expansion accounted for a modest fraction (only 10% ) of the increased
industrial output The inability to expand exports of industrial goods is
partly due to the weakness of the fiscal policy. The tariff structure
pursued by Jamaica, as in the other Caribbean countries, is quite
discriminatory with low tariffs on machinery and capital equipment (the
general tariff averaged 5%), higher tariffs on processed raw materials
(around 12-15%) and highest of all on consumer goods. Within the
consumer goods category we find that the rates are much higher on
luxuries and semi-luxuries (footwear 30% ) than on necessities (e.g., rice
3%). The system of tariff protection offered a subsidy to the importation
of capital goods and produced a strong tendency to use capital intensive
techniques regardless of the country's available and abundant factor
endowments.23 The tariff structure had the deleterious effect of making

23. O. Jefferson, The Post-War Economic Development of Jamaica (Mona:

I.S.E.R., Univ. of the West Indies, 1972), p. 112. Jefferson estimated that the fixed
capital investment required to provide one additional job in the import substituting
industries was $5,402 $6,079 and $7,435 in 1966, 1967 and 1968 respectively. In a
country where capital is the alleged scarce factor it is difficult to see if this form of
industrialisation would reduce the employment problem. Published statitstics by the
Department of Statistics reveal that employment in the manufacturing sector increased
from 76,600 in 1968 to 88,700 in 1972. This represents 10.6% and 11% of the
available force for the respective years. Unemployment for the same period increased
from 18.5% to 22.8%, a result which illustrates that industrial growth did not alleviate
the employment problem.

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 ?

1960-65 1965-70 1960-70

9 45.4 101.5 -2.4 1.0 50.0 17.6 32.4 |
products 33.9 3.7 62.3 469.8 -136.9 -232.9 37.6 3.4 59.0 g products 27.2 0.0 72.9 0.0 -4.0 -104.0 63.1 5.2 36.8

products 66.7 8.3 24.9 70.6 9.0 20.8 63.3 9.7 26.8

MANUFACTURING INDUSTRIES, 1960-70

SOURCES OF GROWTH (AS A PERCENT) OF SELECTED

TABLE 3
articles of textiles -10.9 21.8 89.1 231.2 -23.3 -108.0 74.4 10.0 15.6 |

Industries_EDD EE IS EDD EE IS EDD EE IS H

her paper
od and products
wood products90.4
44.20.6
0.4 8.9
55.4130.4
105.3 1.7
1.1 -32
-6. 1. Alcoholic beverages 60.9 11.4 27.6 104.2 48.5 -52.7 78.9 23.5 4.5 w
2. Non-alcoholic beverages 99.3 -3.1 2.2 98.2 8.8 -7.0 97.5 3.1 -0.6 M
7. Furniture and fixtures 34.1 -2.4 68.2 89.4 2.0 8.4 0.2 51.1 48.7 >
11. Cement and clay products 112.2 -5.4 -6.8 106.5 0.0 -6.5 110.0 -1.9 -8.0

8. Printing, publishing and g

3. Tobacco and tobacco ^ 10. Chemicals and chemical
9. Leather and leather

4. Textiles and made up o

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 CARIBBEAN STUDIES / VOL. 18, NOS. 3 AND 4 151

it profitable for investments to be concentrated in the assembly of radios

rather than in the production of essential goods. This offers one of the
explanations for the sluggish growth of agricultural output (2.5% for
1954-1972) and the continued dependence on imported basic foods.
While the developing countries have been vigorously following a tariff
structure similar to Jamaica's, the tariff structure of the developed
countries is different. In the developed world import duties are very high
on simple labour-intensive goods. This policy tends to discourage
industrialization in the developing world and the expansion of manufac
tured exports from the less developed countries. For example, as shown
by Krein,24 in the United States tariff rates are very low on raw materials
(coconut 2.5%) but very high on processed materials (coconut products
20%).
It is possible that the' protective tariff walls built to create a few
inefficient industries attracted away scarce factors of production from
potentially competitive industries based on the available domestic factor
endowments. The inability of import substitution to effect significant
changes in the share of manufactured goods exports may be due to
the un-competitiveness of these exports or to the lack of available markets.
Access to markets essential for the stimulation and expansion of exports
was an effective constraint.
Another reason for the inability of import substitution to expand
exports of industrial goods is associated with the exchange rate policy.
Examination of the X/M ratio suggests that the exchange rate was
over-valued and this acted as a detriment to export expansion and
diversification. The quantitative evidence, so far as import substitution is
concerned, shows that import substitution made a greater contribution to
the growth of industrial output during the first period, 1960-65, than
during 1965-70. This result re-confirms the findings of Adams.25 The
failure of import substitution to be the dominant factor in promoting
industrial growth may be due to capacity constraints, limitation of the
domestic market, domestic resource endowment, dearth of managerial and
technical skills which may result in low quality, inefficient and high cost
production, and lack of scarce foreign exchange.

24. M.E. Krein, International Economics: A Policy Approach, 2nd ed. (New
York: Harcourt Brace, 1974), p. 375.
25. N.A. Adams, "Import Structure and Economic Growth in Jamaica,
1954-1967," Social & Economic Studies 20, no. 3 (1971).

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 152 II. RESEARCH COMMENTARIES

Because of the conceptual problems involved in measuring import

substitution, it is not possible on the basis of the quantitative evidence
summarized in Table 3 to rank those industries with the highest
contributions to import substitution. Table 4 summarizes estimates of
import substitution for 1960-70. Three different measures of import
substitution have been computed. These are Measure 1(a), Measure 11(b),
and Measure III. The reason is that theoretically these three measures have
the same expected sign.
As shown in Table 4, the rankings of import substitution are not the
same for any industry. The differences in rankings are due to the
differences in the weights used. When Measure I is applied the average
contribution of import substitution to the growth of industrial output for
all industries was 10.3%; in the case of Measure II it was 13.3%, and for
Measure III it was 24.3%.

CONCLUSION

The conclusions drawn from this study must be viewed within the
context of a simplified model and available data. The quantitative evidence
presented is of sufficient importance to justify further investigation relating
to the area of investment strategy. Too often in the past decisions relative
to the inflow of direct investments were made on the simple yardstick of
how much it would temporarily ease the balance of payments and em
ployment problems. Concessions were often awarded without evaluating
the costs. Experience has shown that when there is a foreign exchange
crisis, it is the manufacturing sector which collapses because of its inef
ficiency and continued dependence on imported raw materials and capital
goods. If nothing else, the primary lesson to be learned from the 1977
balance of payments crisis is that for economic planning and investment
allocation, costs, cost-benefit analyses and the law of comparative advant
age assume crucial importance.
Jamaica's import substitution strategy and performance offered as an
illustration fits the case for the whole CARICOM. However, such a policy
offered as a prescription to the economic problems of less developed
countries leads to an inappropriate structure of industrial growth and does
not solve the problem of employment or reduce the dependence on
foreign trade.
Experience has shown that once the infant industry is established the
protection conferred is invariably difficult to remove and thus resort to
efficient economic policies. The argument of growth first, then efficiency

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 50

-?- d

Industries Measure 1(a) Measure 11(a) Measure III ^

5. Footwear 13.5 (3) 39.3 (3) 32.4 (5) <

d products 12.0 (5) 15.5 (5) 11. Cement and clay products -3.6 (11) -5.9 (10) -8.0 (11) >

ALTERNATIVE MEASURES OF IMPORT SUBSTITUTION (AS A %) FOR 1960-70 ?

TABLE 4

8. Printing, publishing and other paper products -1.1 (10) -2.1 (9) -7.6 (10) ^

4. Textile and made up articles of textile 13.1 (4) 20.1 (4) 15.6 (7) ^

3. Tobacco and tobacco products 31.1 (2) 54.4 (2) 59.0 (2) |

10. Chemicals and chemical products 6.7 (6) 10.5 (6) 26.8 (6) ^

9. Leather andAverage
leather products 3.4 (7)for
4.4 (8) 36.8
all (4) O
2. Non-alcoholic beverages -0.3 (9) -24.0 (11) -0.6 (9) O
Note: The figures in brackets refer to rankings.

7. Furniture and fixtures 33.6 (1) 80.8 (1) 48.7 (3) g

1. Alcoholic bevera

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 154 II. RESEARCH COMMENTARIES

is not convincing. Both growth and efficiency have to go hand in hand.

It is a mistake for some policy makers and planners to believe that the
substitution of the market with the time consuming hand of the state
makes for efficient economic planning and dynamic import substitution
(self-reliance). It is an economic fallacy to believe and to advocate that
nationalization would lead to optimal investment allocation, production
and distribution to achieve the socialist objectives of distributive justice
and equality, the elimination of poverty, unemployment, disease, illiteracy,
and the protection of human rights, The experience of state ownership in
the communist countries (as for example, the failure of state-owned farms
and the lack of consumer goods) and the bankruptcy of several of the
nationalized industries in the United Kingdom are harsh realities of poor
economic planning. Intervention of the state and other protectionist
policies can only be justified to achieve efficient functioning of the
market and to promote economic growth.

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 CARIBBEAN STUDIES / VOL. 18, NOS. 3 AND 4 155

APPENDIX

Methodology in Linking Trade Data with Production Data

Total supply (Z) is defined as imports (M) plus domestic production

(O). Production data, obtainable from national income and product
accounts, is on a value added basis. For comparison with trade data what
is needed is the value of domestic production. In compiling national
income estimates the Department of Statistics uses the following estimates
of value added:

Value added as % of
Industries Gross Output
Beverages 66.9
Tobacco 77.7
Textile & textile made up goods 47.7
Footwear 53.2
Wood and wood products 63.5
Furniture and fixtures 59.4
Paper products 59.3
Leather & leather products 5 5.2
Chemical and chemical products 46.1
Cement and clay 54.6

Source: Industrial Activity, Mining, Manufaturing and Constr

ment of Statistics, 1963.

Adjustments were made to the national income data in

estimates of market value of domestic output. For exam
beverages for 1960 in the national income accounts is $
since this represents a value added of 66.9%, then total
$2,185 (000). To estimate total supply, imports had t
specific industries. This was achieved by utilizing th
System of Classification by Industrial Origin, Statistica
No. 43, Rev. 1 published by the Department of Econ

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 156 II. RESEARCH COMMENTARIES

Affairs, United Nations (1971), which provides de link between the

original SITC and the Industrial Standard Classification (ISIC).
For information we present the appropriate SITC corresponding to
the industrial classification of Jamaica:

a. Alcoholic beverages (excluding rum): SITC division 11 but excludes

112-04-32, 111-01-91 and 111-01-99.
b. Non-alcoholic beverages: SITC 111-01-91 and 111-01-99.
c. Tobacco: SITC Division 12.
d. Textiles and made up textile goods: SITC divisions 26, 65 and 84.
e. Footwear: SITC division 85.
f. Wood and wood products: SITC divisions 24 and 63.
g. Furniture and fixtures: SITC divison 82.
h. Printing publishing and paper products: SITC division 25, 64 and
SITC 892.
i. Leather and leather products: SITC division 61.
j. Chemical and chemical products: SITC divisions 51, 53, 54, 55 & 59.
k. Cement and clay products: SITC 661 and 662.
To obtain values at constant prices, total supply was deflated using the
appropriate GDP deflator with 1960 =100.

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