The export-base model with a supply-side stimulus to the export sector

Abstract

In the export-base model, the level of a region’s economic activity is underpinned by the performance of its export sector (Daly in Econ J 50:248–258, 1940; Dixon and Thirlwall in Oxf Econ Pap 27:201–214, 1975; Kaldor in Scott J Polit Econ 17:337–348, 1970; North in J Polit Econ 63:243–258, 1955). This theory is now almost universally represented as a primitive version of the familiar Input–Output or Keynesian demand-driven approach, where regional output is linked to regional exports through a rather mechanistic multiplier process (Romanoff in J Reg Sci 14:121–129, 1974). Further, in a standard IO inter-regional framework, the expansion of output in one region always generates positive impacts on other regions. That is to say, there is always a positive spread, and no negative backwash, effect. However, these models typically embody no supply-side constraints. What is more, the stimulus to the export sector is often thought to come through supply-side improvements (North in J Polit Econ 63:243–258, 1955; McCombie in Appl Econ 24:493–512, 1992). Whilst accepting that the development of a healthy export base is generally central to promoting the growth of the regional economy, the relationship is likely to be much more complex than is usually thought. Also whilst an increase in regional exports typically increases economic activity in the target region, the effect on other regions is less straightforward (Myrdal in Economic theory and underdeveloped regions Duckworth, London, 1957). In this paper, we begin by using a single-region IO analysis of the operation of a stylised export-base model. The impact of a conventional increase in export demand is compared to a situation in which increased competitiveness underpins the improved export performance. This analysis is then extended through the use of an inter-regional (Scotland–Rest of the UK) Computable General Equilibrium (CGE) model. In simulation, different exogenous demand and supply side disturbances are calibrated so as to generate the same long-run expansion in Scottish manufacturing exports. The subsequent specific evolutions of regional GDP and employment in both Scotland and the rest of the UK (RUK) are then tracked.