Why did import-substitution industrialization struggle in many countries?

Import-substitution industrialization (ISI) struggled in many countries because it often failed to progress beyond the initial production of simple consumer goods into more complex manufacturing and competitive exports. While intended to foster broad industrialization, the strategy faced several systemic and structural limitations:12

• Economic Inefficiencies: Protective measures, such as tariffs and import licenses, often led to inefficient investment decisions and prevented countries from leveraging their comparative advantage in international trade.1
• Market Constraints: Many nations, particularly smaller ones, were hindered by the limited size of their domestic markets.13
• Structural Barriers: Growth was frequently stifled by slow employment gains, a decline in the agricultural sector, and minimal productivity growth. Furthermore, a lack of support from transnational corporations for domestic technological development, combined with low levels of technical training, limited the ability to expand into new industries.12
• Social and Political Factors: The strategy often exacerbated income inequality and social conflict. Additionally, the success of ISI was highly dependent on local institutional capacity, which varied significantly between nations.12