Mercantilism

Mercantilism vs. ISI Model

Mercantilism and import-substitution industrialization are two important concepts of economics. They have both similarities and differences. With the comparison, this will be clear.

Mercantilism is an economic system. It was applied from 16th century to end of 17th century with the collapse of feudal system. Mercantilism was applied in European countries. Countries that applied this are especially England, France, Holland, Italy, Spain and Germany.

Import-substitution industrialization (ISI) is an economic model. This model was applied after the Second World War until the 1970’s. It was applied by Latin American countries like Ecuador, Dominican Republic, and Peru; by Middle Eastern countries like Iran, Egypt; by East Asian countries like South Korea, Philippines and by African countries like Kenya, Zimbabwe.

In mercantilism, states support domestic merchants. In this era, warfare was common and states need money to have a strong army and navy. Money could come with taxes from domestic merchants. So, merchants were supported by governments. In contrast to mercantilism, ISI model tries to create a national bourgeoisie. The aim is to reduce the dependence to foreign countries and create a national industry. Therefore, national production and industrialization are supported by governments. At this point, it is clear that in both of them, there is support from state.

In both of them, main idea is that import should be decreased and export should be increased. Both promote export. To support this, there are government protection and tariffs. Price controls are common. In ISI model there is applied quotas on import and government controls exchange system. In ISI, there is a fixed exchange. Privatization is prevented and government has control especially over mining.

In ISI model, the aim was commonwealth. It tries to develop economic conditions of nation. With the support to national entrepreneurs, there occurs employment chance for citizens. It tries to increase GNP and