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This paper examines the stagnation of Brazilian exports of products other than coffee during the postwar period. Export stagnation led to a pattern of autarkic development. The combination of growing domestic demand and income-inelastic supply of imports put pressure on the real exchange rate. As the external value of the cruzeiro depreciated more rapidly than the internal inflation, relative prices moved to favor domestic producers for many new products, leading to the establishment of many new industries producing only for the internal market, and very rapid growth based on import substitution. This process was self-sustaining, as import substitution coupled with export stagnation in one period lowered the equilibrium exchange rate for imports, and stimulated further import substitution in the next. Because of the increasing inelasticity of domestic production with respect to downward movements of the exchange rate, however, import substitution became a progressively more expensive way both of saving foreign exchange and of generating growth.