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Friday, September 12, 2008

"Is Export Led Growth Passé?"

Dani Rodrik wonders if the era of export-led growth as a path to economic development is coming to an end:

Is Export Led Growth Passé?, by Dani Rodrik, Project Syndicate: For five decades, developing countries that managed to develop competitive export industries have been rewarded with astonishing growth rates: Taiwan and South Korea in the 1960’s, Southeast Asian countries like Malaysia, Thailand, and Singapore in the 1970’s, China in the 1980’s, and eventually India in the 1990’s.

In all these cases, and a few others — also mostly in Asia — domestic reforms would surely have produced growth regardless of international trade. But it is difficult to see how the resulting growth could have been as high ... without a global economy able to absorb these countries’ exports.

Many countries are trying to emulate this growth model... [D]eveloping countries have been falling over each other to establish export zones and subsidize assembly operations of multinational enterprises. The lesson is clear: export-led growth is the way to go.

But for how long? While reading the economic tea leaves is always risky, there are signs that we are at the cusp of a transition to a new regime in which the rules of the game will not be nearly as accommodating for export-led strategies. 

The most immediate threat is the slowdown in the advanced economies. Europe and the United States are both entering recession... All this is happening at a time when inflationary pressures hamper the usual monetary and fiscal remedies. ...

On top of this is the almost certain unwinding of global current-account imbalances. Emerging markets and developing countries ran a surplus of $631 billion in 2007... This amounts to 4.2% of their collective GDP. The US alone ran a current-account deficit of $739 billion (5.3% of its GDP). Neither the economics nor the politics of this pattern of current-account balances is sustainable, especially in a recessionary environment. 

The politics is clear to see. Nothing works as potently to inflame protectionist sentiment as large trade deficits. According to a December 2007 NBC/Wall Street Journal poll, almost 60% of Americans think globalization is bad because it has subjected US firms and workers to unfair competition. If globalization has acquired a lousy reputation in the US, the external deficit deserves much of the blame. ...

As the US and other advanced economies become less hospitable to developing-country exports, rapidly growing emerging markets, help as they may, are unlikely to take up the slack... Import tariffs tend to be higher in developing countries, making it more difficult to gain access to them. Moreover, developing countries compete in similar products ...

So exporting will become an even tougher business. Countries like China that have large surpluses will have to rely much more on domestic demand to fuel their economies. ... But the impact will extend beyond the surplus countries. If exporters from Brazil, Turkey, South Africa, and Mexico – all deficit economies – were already struggling to compete with China..., imagine how they will fare under less hospitable conditions.  ...

None of this implies a disaster for developing countries. Long-term success still depends on what happens at home rather than abroad. What is moderately bad news at the moment will become terrible news only if economic distress in the advanced countries – especially the US – is allowed to morph into xenophobia and all-out protectionism; if large emerging markets such as China, India, and Brazil fail to realize that they have become too important to free ride on global economic governance; and if, as a consequence, others overreact by turning their back on the world economy and pursue autarkic policies. Absent these missteps, expect a tougher ride on the global economy, but not a calamity.

    Posted by on Friday, September 12, 2008 at 04:32 PM in Development, Economics, International Trade | Permalink  TrackBack (0)  Comments (17)

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