The Future of Export-Led Growth: The Future of Export-Led Growth: a general assessmenta general assessment
Otaviano CanutoVice President and Head of Network
Poverty Reduction and Economic ManagementThe World Bank
Presentation at the Carnegie Endowment for International Peace June 29, 2009
Key Messages
• Export-led growth strategies propelled developing countries to higher levels of economic growth over the past two decades
• Current financial crisis triggered a decline in trade and the diffusion/deepening of export-led growth strategies tends to become harder
• Trade openness and export diversification remain key drivers for growth and development but substitutes for currency undervaluation and large current-account surpluses will have to be used
1. EXPORT-LED STRATEGIES AND THE LONG BOOM
Financial crisis after a long boom
-2
0
2
4
6
8
1981 1985 1989 1993 1997 2001 2005 2009
4Source: World Bank: 2009 GEP.Source: World Bank: 2009 GEP.
Growth of real GDP, percent
Developing
High-income
Global current account (im)balances
Source: The Turner Review, FSA, March 2009
US current account deficit and gross capital flows
Source: The Turner Review, FSA, March 2009
Foreign-ownership of marketable US Treasury bonds as percentage of total amounts
outstanding
Source: The Turner Review, FSA, March 2009
Household debt as proportion of the GDP
Source: The Turner Review, FSA, March 2009
2. BASIS OF GROWTH: EXPORTS, TRADE SURPLUS, OR
INDUSTRIALIZATION?
Rapid growth associated with openness
0
0.2
0.4
0.6
0.8
1
1.2
-8 -6 -4 -2 0 2 4 6 8 10 12 14 16
10
Real Exports / GDP in 1997Average real GDP per capita growth (1997-2007)
Source: World Bank Group - DECPG
Speed of openness positively associated with faster growth
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
-8 -6 -4 -2 0 2 4 6 8 10 12 14 1611
Change in Real Exports / GDP (2007-1997)
Source: DECPG
Average real GDP per capita growth (1997-2007)
0
5
10
15
20
25
30
0 10 20 30 40 50 60 70 80 90 100
Concentration Index
Terms of trade volatility
Developing Countries: Terms of trade volatility (1996-2006)
Source: Gamberoni and Newfarmer, 2009 based on authors calculation based on World Bank, World Development Indicators
Dependence on fewer exports exposes countries to terms of trade shocks
Necessity products are more inelastic and less affected by demand shocks
• Foodstuffs• Necessities
- Medical stuff• Innovations
- Cell phones- Environmental products
• Services
13
Industry September October November December January February March
Animal & Animal Products 7.45 -2.20 -4.00 0.69 -7.90 -13.11 -2.97
Vegetable Products 24.20 18.58 6.59 11.26 -1.23 -8.02 -9.72
Foodstuffs 19.76 7.93 -3.15 4.66 -6.03 -9.50 0.28
Mineral Products 34.01 25.18 -27.90 -35.23 -50.02 -53.61 -50.74
Chemicals & Allied Industries 26.42 14.00 -3.14 13.34 -11.14 -19.13 -9.60
Plastics / Rubbers 13.98 8.10 -0.58 -5.97 -14.52 -31.11 -21.55
Raw Hides, Raw Hides, Leather & Furs 8.28 -1.12 -9.71 -5.08 -3.76 -25.90 -14.21
Wood & Wood Products -5.41 -9.97 -15.64 -16.85 -25.77 -27.80 -26.02
Textiles 2.01 -0.40 -10.41 -4.58 -9.40 -19.09 -11.20
Footwear / Headgear 7.37 7.31 -3.86 -1.19 5.00 -19.77 -6.77
Stone / Glass 8.49 -14.91 -24.18 -20.14 -34.48 -41.53 -34.38
Metals 25.29 15.59 1.65 -5.95 -13.01 -33.68 -33.09
Machinery / Electrical 4.49 -4.26 -16.17 -13.18 -19.46 -26.19 -21.45
Transportation -10.79 -21.79 -26.51 -21.05 -42.71 -51.49 -45.28
Miscellaneous 4.68 -1.63 -11.16 -5.90 -14.20 -26.35 -14.42
Other 6.42 6.08 -4.81 -1.95 -10.95 -6.54 -12.41
Total 11.59 2.61 -16.02 -14.58 -26.59 -34.14 -28.94Source: U.S.I.T.C. and authors' calculations.
US Import Growth by Industry(in U.S. dollars relative to the same month last year)
Services trade is more robust
Australia
Belgium
Brazil
Canada
Czech RepublicDenmark
Euro area
Finland
FranceGermany
GreeceHungary
Indonesia
Ireland
Italy
Japan
Korea Luxembourg
Mexico
NetherlandsNew Zealand
Norway
Poland PortugalSlovak RepublicSpain
Sweden
Switzerland
Turkey
United Kingdom
United States
-30
-20
-10
010
Gro
wth
Rate
Goods
Import
s
-30 -20 -10 0 10Growth Rate Services Imports
Quarterly Growth Rates Imports45 degree line
Source: Borchert and Mattoo (2009)
Source: Rodrik, D. , “Growth after the crisis”, 2009
Source: Rodrik, D., “Growth after the crisis”, 2009
Source: Rodrik, D., “Growth after the crisis”, 2009
Export-led Growth
• Revisiting Arthur Lewis and Hla Myint• A non-linear and non-spontaneous leap from
traditional non-tradables to non-traditional tradables (institutional weaknesses and market failures)
• Undervaluation as a particular industrial policy• Relevance of local technological learning as a
complement to structural change• Over-absorption in industrial countries made possible
by structural change in developing countries
3. THE CRISIS AS A TURNING POINT
19
Pace of decline in trade is easing on a momentum basis goods exports, nominal, qtr/qtr ch% (saar)
Developing Countries
Source: Thomson/Datastream
Does this signal signs of recovery?
21
150
200
250
300
350
400
450
500
May-07 Nov-07 May-08 Nov-08 May-09
Major Price IndicesIndices of Nominal US$ Prices (2000=100)
Energy
Metals and Minerals
Agriculture
Source: World Bank Development Economics Prospects, June 2009Source: Baltic Dry Index, June 2009
The New Global Environment
Source: Barclays Capital, March 23, 2009
- Deleverage and Financial Introspection: less external finance- Lower growth in industrial countries (effects of the crisis on the potential growth rate)- Less tolerance with current-account large imbalances
Capital flows down by two-thirds from first-quarter 2008 levels
Source: DECPG Finance Team.
Gross capital flows to emerging markets
$ billion
Q1 Total Q1 Total Jan Feb Mar Q1
Total 156 652 103 389 23 8 9 40
Bonds 58 146 12 65 9 7 2 18
Banks 72 312 71 257 8 1 5 13
Equity 26 194 20 68 6 1 2 8
Lat. America 42 156 19 90 9 3 4 17
Bonds 20 45 5 20 5 3 2 10
E. Europe 79 247 36 157 5 1 0 5
Bonds 27 64 2 35 2 1 0 3
Asia 24 188 38 98 8 4 2 14
Bonds 8 23 3 7 2 3 0 5
Others 11 61 11 44 0 1 2 3
2007 2008 2009
Implications for Export-led Growth
• Export pessimism and the “fallacy of composition”
• Flying geese and the recent boom features
• In the absence of undervaluation, subsidies to promote
tradables?
• A higher role for domestic demand expansion?
• Shifting geographical distribution of global demand?
• Open trade still fundamental (inc. to circumvent mismatch
between local production and demand & to help small
countries accrue economies of scale)
