Import Substitution and Export Promotion: Substitutes or Complements

Import substitution and export promotion have been pursued in tandem in the course of Taiwan's economic development. Some argue that these apparently contradictory policy offset each other and result in a neutral trade policy stance. Others argue that the componends of this policy mix actually reinforce each other. In this paper, we study the relationship between import substitution and export performance in Taiwan over the period 1971-1991, using industry-level data. We find no evidence for the assertion that import substitution in the upstream industries contributes to the expansion of exports in the downstream industries. On the contrary, export expansion in the downstream industries was found to be a driving force behind import substitution in the upstream industries.