5.4 Export led growth / 5.4 Export led growth / outward orientated strategiesoutward orientated strategies

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Benefits of integrating Benefits of integrating domestic economy into the domestic economy into the

world economy?world economy?

What are they?What are they?

Export-led growth – ‘easy Export-led growth – ‘easy export substitution’export substitution’

Export led growth refers to a strategy where Export led growth refers to a strategy where economic growth (and development) is achieved economic growth (and development) is achieved through the growth in export earnings.through the growth in export earnings.

It is an outward looking strategy because it It is an outward looking strategy because it attempts to integrate the domestic economy into attempts to integrate the domestic economy into the world economy and compete in world the world economy and compete in world markets.markets.

Generally it still involved a high level of Generally it still involved a high level of government intervention - see page 460 Tragakes government intervention - see page 460 Tragakes for summary and previous notes on issue.for summary and previous notes on issue.

Success of export-led Success of export-led growthgrowth

Access to larger markets, hence Access to larger markets, hence exploitation of economies of scale, larger exploitation of economies of scale, larger sales, profits potentially.sales, profits potentially.

Diversification into a broad range of Diversification into a broad range of manufactured products (from labour manufactured products (from labour intensive consumables to more intensive consumables to more sophisticated capital intensive durables) sophisticated capital intensive durables) and thus reduced risk and growth of high and thus reduced risk and growth of high YED exportsYED exports

Government support for education, Government support for education, training and research and development, training and research and development, need for developmental government, need for developmental government, target setting for loans and licences. target setting for loans and licences.

Export led growthExport led growth

Explain and show on Explain and show on an AS/AD diagram an AS/AD diagram how increased how increased exports can increase exports can increase GDP, employment GDP, employment and living standards.and living standards.

The Washington ConsensusThe Washington Consensus

1980s saw shift in 1980s saw shift in thinking towards neo-thinking towards neo-classical supply-side classical supply-side ideasideas

They did not work They did not work very wellvery well

Explain 3 supply-side Explain 3 supply-side policies and how they policies and how they are meant to help are meant to help deliver economic deliver economic growth in developing growth in developing countriescountries

The 10 steps to WashingtonThe 10 steps to Washington1.1. Trade liberalisationTrade liberalisation

2.2. Free movement of capitalFree movement of capital

3.3. Sound government financesSound government finances

4.4. Lowering marginal rates of direct tax and broadening Lowering marginal rates of direct tax and broadening the tax basethe tax base

5.5. Changing spending priorities towards education, Changing spending priorities towards education, healthcare and infrastructurehealthcare and infrastructure

6.6. Increasing interest ratesIncreasing interest rates

7.7. Freely floating exchange ratesFreely floating exchange rates

8.8. PrivatisationPrivatisation

9.9. DeregulationDeregulation

10.10. Ensuring property rightsEnsuring property rights

Impact of the policies of the Impact of the policies of the Washington Consensus?Washington Consensus?

Spot the difference?

Did not work for countries that had not already Did not work for countries that had not already established an industrial base via ISI.established an industrial base via ISI.

Many LDCs were forced to rely on primary Many LDCs were forced to rely on primary product exports – exploit their comparative product exports – exploit their comparative advantage - and were encouraged to do so by IMF advantage - and were encouraged to do so by IMF / World Bank in the new world of free market / World Bank in the new world of free market economicseconomics

Yet trade barriers (especially on agricultural Yet trade barriers (especially on agricultural products but also simple manufactured products) products but also simple manufactured products) prevented many LDCs from achieving growth in prevented many LDCs from achieving growth in

export revenues or GDP.export revenues or GDP.

Cuts in government spending and commitments Cuts in government spending and commitments to meet interest payments often led to cuts in to meet interest payments often led to cuts in spending on healthcare and education.spending on healthcare and education.

Removal of price subsidies and minimum wages Removal of price subsidies and minimum wages meant that real wage rates fell for many of those meant that real wage rates fell for many of those close to or in poverty.close to or in poverty.

See Tragakes pages 462 – 464 for summary See Tragakes pages 462 – 464 for summary and further readingand further reading

The New Development The New Development ConsensusConsensus

Takes us back to something like the Takes us back to something like the easy export substitution approacheasy export substitution approach

Recognises the role that government Recognises the role that government must play in bringing about must play in bringing about developmentdevelopment

You work at the World Bank and You work at the World Bank and realise that the Washington realise that the Washington consensus approach has not consensus approach has not worked. Develop a new roadmap for worked. Develop a new roadmap for developing countries that can lead developing countries that can lead them from rural poverty to them from rural poverty to industrialisation and growth.industrialisation and growth.

See pages 464 – 465 Tragakes See pages 464 – 465 Tragakes

In pairs, work on model answers to the questions 1 – 5 in Tragakes, page 467.Type up for homework.