Abstract
This paper considers the determinants of exports of modern services and traditional services. It considers the growth of export volumes as well as export surges, that is, the periods of rapid sustained export growth. It asks whether the determinants of export growth rates and export surges differ between merchandise, traditional services, and modern services and whether developing countries are different. It confirm the importance of the real exchange rate for export growth. The paper finds that the effect of the real exchange rate is even stronger for exports of services than for exports of goods and that it is especially strong for exports of modern services. The results suggest that in the course of their development, as developing countries shift from exporting commodities and merchandise to exporting traditional and modern services, appropriate policies toward the real exchange rate become even more important.
Highlights
There is a broad consensus that policies encouraging exports can have a positive impact on economic growth.1) The marginal product of labor tends to be higher in the production of exports than other activities
We find that the effect of the real exchange rate is even stronger for exports of services than exports of goods; it is especially strong for exports of modern services
The role of exports in economic growth and, in turn, of the real exchange rate in export promotion is prominent in the literature on openness and development
Summary
There is a broad consensus that policies encouraging exports can have a positive impact on economic growth.1) The marginal product of labor tends to be higher in the production of exports than other activities. On the other hand, can be an important complication for planning and serve as a disincentive for investment in general and for investment in capacity in the exportables sector in particular (Servén, 2003) These literatures developed in an age when trade was predominantly trade in merchandise. In the developing-country context, the real exchange rate is likely to matter less, while political risk is more important for competitiveness in key service sectors like tourism. While the evidence for differential effects between advanced and developing countries is weaker, this still suggests that as developing countries shift from exporting primarily commodities and merchandise to exporting traditional and modern services, appropriate policies toward the real exchange rate become even more important.
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