Trade as the Engine of Growth in Developing Countries, Revisited

Abstract

economic growth in developed countries since the mid-1970s. The only way to keep the engine of LDC growth beating at a satisfactory rate, so the argument goes, is to turn to an alternative source of fuel. This, Lewis argues, lies in trade among the developing countries, which he asserts can 'take up the slack left by MDCs (more developed countries) as MDCs slow down' (1980, p. 560). Pessimism about demand for LDC exports in developed countries' markets is a recurrent theme in the development literature. Also familiar is the approach taken by Lewis to dismiss past successes of LDCs in world trade by declaring the alleged engine of past growth to be no longer operating satisfactorily. The intellectual foundations of the import-substitution strategy laid in the 1950s by Prebisch, Myrdal and, most importantly, Nurkse rested on similar grounds. Arguing that the demand for 'periphery' countries' exports in the 20th century is far weaker than it was in the 19th century, trade was dismissed as an engine of growth, a function Nurkse alleged it had served in the 19th century. The solution prescribed in the 1950s was to look inward, in effect, to scrap the trade engine altogether. Lewis' remedy, coming two decades later when most importsubstitution possibilities in many LDCs have been all but exhausted, retains the trade engine but seeks an alternative source of fuel to drive it. The classic critique by Irving Kravis (1970) of Nurkse's thesis of trade as a faltering engine of growth showed that ' Export expansion did not serve in the nineteenth century to differentiate successful from unsuccessful countries' (p. 850). This followed from two findings: first, that successful 19th century countries showed few signs of export dominated growth; second, that unsuccessful periphery countries enjoyed export expansion in the second half of the 19th century of the same order of magnitude as the temperate regions of recent settlement. This led Kravis to conclude that ' A more warranted metaphor