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The future of export led growth
Eduardo ZepedaCarnegie Endowment for International Peace
United nations Development Programme29 June 2009
The facts
Exports have grown faster than income.
• Growth is correlated with exports.
• Even for countries with a stable exports-to-gdp ratio, exports tend to grow faster than gdp
• The change in exports is positively correlated with gdp, even if we exclude exports from gdp
Export Growth and Output Growth, 1960-2004
Source: Growth-Led Exports: Implications for the Cross-Country Effects of Shocks to Potential Output. Joseph E. Gagnon The . Berkeley Electronic Journal of Macroeconomics, vol. 8 (2008), pp. 1-28
The case for export led growth
• The static argument:
• Exports shift resources according to comparative advantage
• Exports shift resources from non tradables to tradables
• From low to high productivity activities
The case for export led growth
• The dynamic argument:
• Transfer of technology
• Economies of scale
• Learning by doing
• FDI plays a key role
The case for export led growth
• The development argument:
• By favoring the use of resources according to their availability,
• export-led-growth is likely to increase the demand for unskilled labor
• thereby improve distribution and reduce poverty
The policy implications
• Export led growth has been widely embraced structural adjustment strategies
• It has been used as an argument for
• trade liberalization
• concessions to foreign direct investment
• overall pro-market policies
• (some financial and monetary implications will be discussed later)
Export led growth, the issues :
• Heterogeneity of results• Mexico, Malaysia, Hong Kong and Thailand
have a similar average export/GDP ratio (10%), but average growth rates are about 4% for Mexico and between 6 and 7% for the later three. (Data are for 1960-2004)
• Uruguay and Egypt have the same export ratio (5%), but the first has an average growth rate of 2% compared to 5% for the second.
Heterogeneity of results
• Between 1960 and 2004:• Mexico, Malaysia, Hong Kong and Thailand
have a similar average export/GDP ratio (10%), but average growth rates are about 4% for Mexico and between 6 and 7% for the later three.
• Uruguay and Egypt have the same export ratio (5%), but the first has an average growth rate of 2% compared to 5% for the second.
Heterogeneity of results Export Growth and Output Growth, 1960-2004
Source: Growth-Led Exports: Implications for the Cross-Country Effects of Shocks to Potential Output. Joseph E. Gagnon The . Berkeley Electronic Journal of Macroeconomics, vol. 8 (2008), pp. 1-28
Heterogeneity of results
• Haussman, Hwang, Klinger, Rodrick have shown the importance of – what you export and – what exports you choose to promote
For the income and development outcome
Colombia’s Evolution in the Product Space Colombia 1975
Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008
Malaysia’s Evolution in the Product Space Malaysia 1975
Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008
Malaysia’s Evolution in the Product Space Malaysia 2000
Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008
Colombia’s Evolution in the Product Space Colombia 2000
Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008
A Visual Representation of the Product Space
Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008
A Visual Representation of the Product Space
Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008
Undue specialization in export markets
• Promotion of exportables by small-farm producers (fruits, vegetables, flowers)
• Last year dramatic changes in prices of wheat, rice, maize, etc. had an important impact
• Valdes and Foster analyze the case of Chile and argue that those in exportables and non-trables loose, but those that remain in import competing goods gained.
• Underscoring the importance of the domestic market and diversification
Distribution and poverty
• More often than not, trade liberalization (export promotion) have concentrated income
• The impact on poverty is small (Brazil, Madagascar, Mexico, etc.)
• Vulnerability to price changes
The impact of the crisis
• The crisis:– Fall in exports– Protectionism (tariffs, non-tariff protection,
subsidies, discrimination vs imports) – Over-reacting
• Export led-growth recovery path?– Not very likely– Neither marginal
Growing through the crisis• We might turn to Growth-led-exports
– We might consider increasing developing countries’ domestic demand
• A successful export led-growth strategy includes industrial policy
• Alternative sources of export growth:– South-south
Concluding remarks
• Export led growth, still an option
• Combine with the promotion of domestic market
• Avoid vulnerability (agriculture), promote diversification
• Restore selective industrial policy
• Articulate economic and social policies