Export Instability and Economic Growth: A Statistical Verification

Abstract

Because less developed countries (LDCs) export mainly primary products, it has been claimed that their economic growth suffers from the deleterious effects of the export instability they experience.' The detrimental effects of export instability have been attributed to either the price instability of primary products per se or to the resulting fluctuations of export proceeds. The argument concerning the effects of export instability on economic growth are usually made on a priori basis with no, or at best, very little empirical evidence. Recent empirical studies,2 however, have claimed that there is no statistical evidence to support the hypothesis that fluctuations in export proceeds inflict significant damage on the stability and growth of the average underdeveloped country,3 or that there is any relation between growth in per capita real income and export instability.4 The purpose of this paper is to point out methodological deficiencies in the above empirical studies that significantly weaken their findings and to test in a more systematic way the validity of the a priori arguments regarding the effects of export instability on the economic growth of both LDCs and developed countries (DCs). In addition, an attempt is made to determine the effects of export instability on the growth of exports and to evaluate the relative importance of the export price and export quantityinstability effects on economic growth.