Export Performance and Productivity Growth: The Case of Taiwan

Abstract

The hypothesis that rapid growth of exports accelerates economic growth has been widely discussed and tested. The empirical evidence that supports the hypothesis includes studies by M. Michaely, B. Balassa, P. Heller and R. Porter, W. Tyler, G. Feder, R. Kavoussi, and R. Ram, using macrodata; and M. Nishimizu and S. Robinson, using two-digit industry-level data.' Feder found that exports contribute to economic growth because the export sector is not only more productive than the nonexport sector but also generates some external effects that enhance the productivity of the nonexport sector. As exports expand, both the resource reallocation effect and externality effect lead to an economy-wide productivity increase. Nishimizu and Robinson also found the existence of a significant correlation between productivity growth and export expansion. On a theoretical level, there are at least two interpretations of the correlation between productivity growth and export expansion: one stresses scale economies, the other stresses competitive forces. The scale economies argument emphasizes the benefits that can be derived by means of expanding the scale of operations. In the case of countries whose domestic markets are small in size, exporting becomes an essential part of achieving scale economies. J. Bhagwati considered scale economies to be a plausible explanation for the superiority of the export-promotion trade strategy, as opposed to the import-substitution trade strategy, but warned against the lack of convincing evidence.2 The study by J. Kwon on the Korean manufacturing industry also found that scale economies are a main factor contributing to total fac-