Social Scientist. v 18, no. 204 (May 1990) p. 30.

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Import Substitution and the Structure of the Iranian Economy 1962-1977

The strategy of import-substitution industrialisation (henceforth ISI) was one adopted by several newly independent countries in the postwar period. International disparities in income and degree of technological advancement between developed and underdeveloped countries, as well as the internal characteristics of the underdeveloped countries themselves, prompted an orientation to 'economic nationalism1.1 The typical initiatives of the state in many such countries included not only stabilization of political power but also unification of the national market and structural transformation of the economy. To this end, greater or lesser reliance on state-directed or planned industrialisation was also an important feature of the overall strategy.

The experience of Iran, a middle-income country with modest population density and significant fluctuations in export earnings, provides an interesting exaipple of the impact of the ISI strategy under these circumstances. The Iranian economy shared many of the general features of underdeveloped economies, in particular a marked dualism between sectors as well as major regional and income disparities. The Iranian development strategy also shared some general characteristics with other newly-industrialising countries such as India and Brazil, especially in terms of efforts made to expand the domestic market, attempts (albeit largely unsuccessful) to absorb the underemployed rural labour force, and the mobilization of domestic resources for investment in the manufacturing sector.

However, the Iranian economy differed in some crucial respects from the typical developing country with low per capita income, high population density and a binding foreign exchange constraint. The presence of large natural resources of energy allowed for the profitable export of petroleum products, which not only relieved the foreign exchange constraint but provided a dominant source of domestic savings. Thus, the major external problem which the Iranian economy faced at the time of the formulation of the ISI strategy in the early 1960s, was

*Teaches Economics at Tehran University.

Social Scientist, Vol. 18, No. 5, May 1990

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