Structural Change and Import Substitution in Chicago

Project Number: 348
Report Date: April 1992
Author(s): Joseph Persky, Virginia Carlson
Rising Import Shares in Most of Chicago: The Chicago economy has offset its growing import shares in most of its industries by increasing the share of activity in service and other industries with low propensities to import. Over the next several decades the shift toward services will slow down. If the rise in import shares can't be reversed, the area will either have to export more to balance higher levels of imports or its production levels will shrink. Programs to promote import substitution can play a major role in stabilizing the local economy.

Import Substitution generates multiplier effects as large as export growth: A dollar of import substitution in an industry has just as large an effect on total output as an additional dollar of exports. The city's Regional Economic Model (REMI) forecasts that $100 million dollars of import substitution in Fabricated Metals will create 1880 local jobs, the same as $100 million of new exports in Fabricated Metals. Moreover, by raising the propensity to buy locally, import substitution actually raises the local multiplier for other industries. Policy analysts, however, must be careful not to confuse import substitution with the displacement of one local producer by another.

A new approach to targeting industries for import substitution: the data base of the city's regional model allows the identification of a group of industries with significant existing export capacity but relatively low local sales. Over fifty such industries are identified for further study. Designing a program to assist import substitution in these industries promises substantial rewards to the city.