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