It's hard to see why it does, in view of the numbers here. They reveal that import substituting industrialization (ISI) had a more-than-respectable productivity record.
But there are two other objections that often surface in relation to ISI--and which were raised in the discussion that followed my earlier post. One is that ISI has an easy early stage, and then gets bogged down in its difficult later stage. The other is that the debt crises that Latin American and other countries succumbed to in the 1980s were the consequence of ISI. The first argument may be right, but is largely irrelevant. The second is almost surely wrong.
The "easy ISI" hypothesis has never been precisely formulated, as far as I know. I think I know that it can be done, but I strongly suspect that it would be a highly contingent argument rather than a general one. The typical formulations in terms of the ease of producing the first generation of light manufactures versus the difficulty of more sophisticated products is not very satisfactory, when one bears in mind the learning that takes place along the way. But the more telling point, in fact, is that countries like Brazil and Colombia were already pulling out of inward-looking regimes by the 1970s. So ISI was not just a static set of incentives. Countries did not necessarily get bogged down in some easy early stage.
With regard to the debt crisis, the argument that gives ISI a causal role mixes up microeconomics with macroeconomics. ISI is about "distorting" relative prices and the sectoral allocation of production and investment. The debt crises were about mismanaging the relationship between aggregate expenditures and incomes. You can have as distorted a structure of relative prices as you want, but still run balanced budgets and zero current account deficits. Conversely, you can be extremely outward-oriented and have free-trade regimes, but still face currency and debt crises if your macro and exchange-rate policies encourage over-spending. (If this were a classroom, I would ask my students to fill the implied 2x2 matrix with real world country examples.)
Latin American countries ran into the debt crisis because they had expansionary fiscal policies and/or overvalued currencies, not because they had high trade barriers or directed credit. Incidentally, the country with the most overvalued currency of them all was Pinochet's free trading Chile. And Chile experienced the deepest collapse in the entire region in 1982-83 when capital inflows stopped. Its liberal economy and low trade barriers did not protect it.
But some myths die hard.