Is Export Led Growth Passé?

For five decades, developing countries that managed to develop competitive export industries have been rewarded with astonishing growth rates. But, with the US and Europe heading into recession, those days are over, and domestic demand in developing countries is unlikely to take up the slack.

CAMBRIDGE – 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 – reaching an unprecedented 10% or more annually in per-capita terms – without a global economy able to absorb these countries’ exports.

Many countries are trying to emulate this growth model, but rarely as successfully because the domestic preconditions often remain unfulfilled. Turn to world markets without pro-active policies to ensure competence in some modern manufacturing or service industry, and you are likely to remain an impoverished exporter of natural resources and labor-intensive products such as garments.

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