Advanced Placement (AP) Human Geography Practice Exam

What is the definition of import substitution in economic terms?

1. The importation of luxury goods to develop economies

2. The production of goods internally that were previously imported

3. The reliance on foreign direct investment for local production

4. The reduction of exports in favor of local consumption

The correct answer is: The production of goods internally that were previously imported

Import substitution is defined as the production of goods internally that were previously imported. This economic strategy encourages countries to develop their own industries rather than relying heavily on foreign imports. By fostering local production capabilities, a nation aims to reduce dependency on external markets and enhance self-sufficiency. This approach is often implemented through protective tariffs, subsidies for domestic industries, and investment in infrastructure to support local manufacturing. In this context, the correct answer captures the essence of import substitution by emphasizing the shift from foreign goods to locally produced alternatives. Such strategies are commonly pursued in developing economies to stimulate growth, create jobs, and improve trade balances by decreasing imported goods. This contrasts significantly with other concepts like relying on foreign direct investment or prioritizing luxury imports, which do not align with the principles of import substitution.