The future of export led growth

1
The future of export led growth

• Eduardo Zepeda
• Carnegie Endowment for International Peace
• United nations Development Programme
• 29 June 2009

2
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

3
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
4
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

5
The case for export led growth

• The dynamic argument
• Transfer of technology
• Economies of scale
• Learning by doing
• FDI plays a key role

6
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

7
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)

8
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.

9
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.

10
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
11
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

12
Colombias Evolution in the Product Space
Colombia 1975
Source Achieving Export-Led Growth in Colombia R
Hausmann, B Klinger. CID Working Paper No. 182,
2008
13
Malaysias Evolution in the Product Space
Malaysia 1975
Source Achieving Export-Led Growth in Colombia R
Hausmann, B Klinger. CID Working Paper No. 182,
2008
14
Malaysias Evolution in the Product Space
Malaysia 2000
Source Achieving Export-Led Growth in Colombia R
Hausmann, B Klinger. CID Working Paper No. 182,
2008
15
Colombias Evolution in the Product Space
Colombia 2000
Source Achieving Export-Led Growth in Colombia R
Hausmann, B Klinger. CID Working Paper No. 182,
2008
16
A Visual Representation of the Product Space
Source Achieving Export-Led Growth in Colombia R
Hausmann, B Klinger. CID Working Paper No. 182,
2008
17
A Visual Representation of the Product Space
Source Achieving Export-Led Growth in Colombia R
Hausmann, B Klinger. CID Working Paper No. 182,
2008
18
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

19
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

20
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

21
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

22
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