Import Replacement

The conventional theory of economic growth, descending from Ricardo's 1817 comparative advantage, holds that regions specialize in what they do best and trade for what they need. Jacobs demonstrated in The Economy of Cities (1969) that this theory, while elegant, described almost nothing about how economies actually grow. What she found by looking at historical cases was that vital economies grew through import replacement — the gradual substitution of locally produced goods and services for previously imported ones. A city imports bicycles; a local entrepreneur begins manufacturing them; the factory needs tires, and another entrepreneur begins manufacturing tires; each substitution adds an enterprise, a skill, and a capability, and each makes the next substitution possible. The economy diversifies, becomes more resilient, and generates the dense interactions from which unexpected combinations emerge.