Examining Export-Led Growth in Sub-Saharan Africa and China

Abstract

Export-led growth is an economic hypothesis that links the level of a nation’s exports to economic growth in that country. Seen primarily as a model for low-income, developing nations to accelerate convergence as China began to do in the 1980s, the hypothesis theoretically still stands for developed nations. However, there exists significant discussion and doubt as to the strength and causality of the relationship between exports and growth, especially after a nation has industrialized and established itself as a major exporter. This paper examines and compares the effect of exports, imports, and net exports on economic growth for a set of low-income nations (Sub-Saharan Africa) and a country that has already undergone a significant economic transformation (China, at the provincial level). I regress the share of exports, imports, and net exports against GDP growth for Sub-Saharan African nations and Chinese provinces, and use instrumental variables to check for robustness. I find that while in Sub-Saharan Africa the share of exports and net exports exhibit a positive relationship with economic growth, higher shares of exports and net exports in China are associated with lower economic growth. This suggests that export-led growth is valid in Sub-Saharan Africa, but no longer is in China. I pose two potential explanations for this outcome in China: inefficient trade with low-income nations or decreasing trade with high-income nations. Regressions of China’s exports to these two types of economies over time indicate that the latter is the primary cause of the distinction in the effect of exports.