Export-led Growth Strategy Research Articles

The Effect of Export-Led Growth Strategy on the Ethiopian Economy

<b> </b><b> </b>The research is aimed to scrutinise empirically the ELG (export-led growth strategy) on Ethiopia's economy. The causal relationship between export and economic growth of the country was analyzed with the application of Granger (1969) causality test using annual data for the period 1974 to 2009. It revealed that the decline in economic growth in the country pre reform period coupled with the alarming population growth led to stagnation and even a continual decline in the income of the country. This led to closer scrutiny of export growth on economic growth to achieve a sustained economic growth. Since 1992, the economic growth policy of Ethiopian government was guided by the idea of export-led growth. The view of export-led growth conceives growth of exports as having a favorable impact on economic growth. According to this view, export expansion to foreign markets improves resource allocation and production efficiency. Export is claimed as the 'engine of growth'. The results of the study show that there is evidence of uni-directional causality between export and economic growth for Ethiopia. Export growth causes economic growth. Thus, the results are favorably comparable to those obtained in the literature (Shan and Sun, 1998).

CHINA’S GROWTH STORY: THE ROLE OF PHYSICAL AND SOCIAL INFRASTRUCTURE

The paper investigates the role of infrastructure in promoting economic growth in China using ARDL and GMM techniques for the period 1975 to 2007. In this context, an attempt is made to understand growth accounting equations to investigate the impact of infrastructure development on output. Overall, the results reveal that infrastructure stock, labour force, public and private investment play an important role in economic growth in China. More importantly, the study finds that Infrastructure development in China has significant positive contribution to growth than both private and public investment. Further, there is unidirectional causality from infrastructure development to output growth justifying China's high spending on infrastructure development since the early nineties. The experience from China suggests that it is necessary to design an economic policy that improves the physical infrastructure as well as human capital formation for sustainable economic growth in developing countries.Keywords: China, Infrastructure Development, Investment, Output GrowthJEL classification: H4, H54, L9, O1(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONChina is the fastest growing country in the world for last few decades and accounts for nearly one fifth of the world population. Economic growth in China increased from 7.5% during 1970 to 1999 to over 10% per annum between 1999 to 2008. This has attracted many scholars to examine the major determinates of growth in China. Over the last two decades, academic research has devoted considerable attention to the role of trade and Foreign Direct Investment (FDI) in promoting growth. However, the role of infrastructure and human capital development has been neglected. Therefore, this paper offers an empirical assessment of the impact of infrastructure and human capital development on growth in the case of China.The role of infrastructure in enhancing economic development has been well documented both in the academic literature and in the policy debate (Aschauer, 1989; Munnell, 1990; World Bank, 1994; Calderon and Serven, 2003; Estache, 2006; Sahoo, 2006; Sahoo and Dash, 2010; and 2011). More recently, increasing attention has also been paid to the impact of infrastructure on poverty and inequality (World Bank, 2006). Further, it has been found that social infrastructure such as education, health, and housing are essential to promote better utilization of physical infrastructure and human resources, thereby leading to higher economic growth and improving quality of life (Hall and Jones, 1999).Over the past two decades, one of the defining features of China's growth has been investment led growth supported by domestic savings. China's sustained high economic growth and increased competitiveness has been underpinned by a massive development of physical infrastructure (Chatterjee, 2005; Stephane et al., 2007). The open economic policy made it possible for the inflow of foreign direct investment (FDI) mainly to the manufacturing sector. Cheap labour and better than adequate infrastructure were important pre-requisites that led to a successful the export-led growth strategy. With seemingly unlimited supply of cheap labour from the rural sector, public investment in infrastructure became the keystone in the strategy. A major focus by the government at all levels on infrastructure thus ensued.1Though infrastructure development certainly helped export-led economic growth in China, the Chinese economy started showing signs of overheating in recent years because of basic infrastructure constraints. Clearly, there is an increasing gap between the potential demand and the available supply of infrastructure to sustain high growth. Given the importance of infrastructure development for sustainable economic growth and poverty reduction in China, the present study examines the output elasticity of infrastructure development in China for the period 1970-2008. …

Is the Recovery Sustainable?

Fiscal austerity is now a worldwide phenomenon, and the global growth slowdown is highly unfavorable for policymakers at the national level. According to our Macro Modeling Team's baseline forecast, fears of prolonged stagnation and a moribund employment market are well justified. Assuming no change in the value of the dollar or interest rates, and deficit levels consistent with the Congressional Budget Office's most recent no-change scenario, growth will remain very weak through 2016 and unemployment will exceed 9 percent. In an alternate scenario, the authors simulate the effect of new austerity measures that are commensurate with the implementation of large federal budget cuts. Here, growth falls to 0.06 percent in the second quarter of 2014 before leveling off at approximately 1 percent and unemployment rises to 10.7 percent by the end of 2016. In their fiscal stimulus scenario, real GDP growth increases very quickly, unemployment declines to 7.2 percent, and the US current account balance reaches 1.9 percent by the end of 2016—with a debt-to-GDP ratio that, at 97.4 percent, is only slightly higher than in the baseline scenario. An export-led growth strategy may accomplish little more than drawing a small number of scarce customers away from other exporting nations, and the authors expect no net contribution to aggregate demand growth from the financial sector. A further fiscal stimulus is clearly in order, they say, but an ill-timed round of fiscal austerity could result in a perilous situation for Washington.

FDI and its Relation with Exports in India, Status and Prospect in North East Region

After pursuing an inward looking policy of import substitution with public regulation in charge for more than four decades, India has adopted the New Economic Policy (NEP) in 1991 in the wake of economic crisis. The NEP has removed all sorts of biases against exports initiating reforms in the areas of international trade, investment, financial sector, and industrial and public sector deregulations. The flows of foreign capital are being welcomed. The East Asian experience has shown that the export-led growth strategies have been facilitated by FDI transferring into the host country technology, managerial and other expertise needed to exploit the country's comparative advantage. Against this back-drop, this study has three fold objectives. First, it investigates the trends of FDI in India during the period 1991-92--- 2010-11. Second, based on the yearly time series data, the relationship between FDI & manufactured exports has been examined for the same period by using the vector error correction model (VECM).The study found bi-directional causality between FDI and Exports. Finally, the paper depicts the present status of FDI & exports in North East Region (NER) with a focus on their prospect. The Look East Policy (LEP) of the govt. may benefit the region because of its strategic location. However, despite having natural advantage of trade with neighbouring countries and the potentiality to develop various industries as being endowed with vast natural resources, the NER fails to attract any sizeable amount of FDI due to infrastructural and other bottlenecks. The need is to remove such fundamental constraints through strategic intervention

The U.S.-China Exchange Rate Debate: Using Currency Offer Curves

The paper introduces an innovative graph for presenting bilateral exchange rates. The currency quantities are on the axes and the exchange rate is the ratio between them, i.e., the slope of a ray from the origin. Behavior is captured by currency offer curves. The paper uses the model to address the issues surrounding China’s export-led growth strategy, i.e., its policy of undervaluing the yuan.

Impact socio-économique de l’ALENA au Mexique : Bilan et perspectives

This article assesses the developmental record of the North American Free Trade Agreement (NAFTA) in Mexico fifteen years after its implementation. After analyzing the evolution of trade and investment flows and their impact on employment and wage levels in the manufacturing and agricultural sectors, the author highlights the success and limits of the NAFTA integration model. He concludes that while NAFTA should not be seen as a solution to all of Mexico’s socio-economic problems, NAFTA nonetheless suffers from a "deficient [social] institutionality" that can be addressed through both domestic and supranational reforms. At the domestic level, the Mexican government should rethink its export-led growth strategy and prioritize tax reforms and domestic investments in education and infrastructure. At the supranational level, the NAFTA model should be upgraded to address its social lacunae, especially in the policy spheres of investment, immigration, agriculture, and resource transfers.

Exchange Rate Misalignment and International Law

History is replete with examples where states have interfered with foreign exchange markets in order to influence exchange rates. The trade conflicts between the two world wars, for instance, were fought not only via the imposition of tariffs, but also via competitive devaluations. Since then, straightforward competitive devaluations have become a rare phenomenon; contemporary scenarios, in which exchange rate policies are criticized for their potentially protectionist impact, tend to be much more sophisticated. The exchange rate policy followed by China is certainly the outstanding, yet not exclusive, example. In recent years policymakers worldwide have criticized China for maintaining an undervalued real exchange rate as part of its strategy of export-led growth.

The role of macroeconomic policies in the global crisis

This paper argues that the lack of timely and decisive policy action to correct domestic and external imbalances contributed crucially to the build-up of financial excesses that led to the financial crisis and the Great Recession. We focus on 2002–2007 and perform a number of counterfactual simulations to investigate two central elements of the story, namely: (a) an over-expansionary US monetary policy and the absence of effective macro-prudential supervision, which permitted a prolonged expansion of debt-financed consumer spending and (b) the choice by China and other emerging countries to pursue an export-led growth strategy supported by pegging their currencies to the US dollar, in conjunction with sluggish domestic demand in major advanced economies characterized by low potential output growth. The results of the simulations lend support to the view that if substantial, globally coordinated demand rebalancing had been undertaken early on, the macroeconomic and financial imbalances would not have accumulated to the extent that they did and the financial turmoil might have had less drastic global consequences.

Unbalanced Development: The Origin of Korea's Self-Employment Problem from a Comparative Perspective

Why does South Korea have a demographically massive and economically vulnerable self-employed population? From a comparative perspective, this study argues that Korea's self-employment problem originated in the country's process of unbalanced development: Korea benefited from the strategy of export-led growth, yet it did not manage the negative impact of this strategy on labour force absorption. The consequence of unbalanced development is the limited capacity of labour markets to absorb the workforce. Therefore, rural migrants in urban areas had no choice but to open small businesses, despite having few financial and technological resources.

From the “Hindu rate of growth” to “unstoppable India”: has the services sector played a role?

India shifted from an import substitution growth strategy (ISS) to an export-led-growth strategy (ELGS) in July 1991. Consequently, liberalisation was promulgated not only in the industrial sector ...

Trans-Pacific Rebalancing: Thailand Case Study

Since the Asian financial crisis in 1997, Thailand has become highly dependent on export as the engine of economic recovery and growth. In 2008, the ratio of export to gross domestic product (GDP) was 76.5%. The global economic crisis triggered by the sub-prime loans debacle in the United States has prompted Thailand to rethink her export-led growth strategy. Year-on-year export growth plunged from a positive 22.7% in the third quarter of 2008 to a negative 7.75% in the fourth quarter and remained negative for another four quarters, leading to a negative growth of GDP for five consecutive quarters. This paper examines the options for external and internal economic rebalancing strategies for Thailand. External rebalancing will require Thailand to rely less on the US market for her exports. The paper thus examines the possibility of promoting greater regional trade by means of trade agreements and exchange rate coordination. As for internal rebalancing, the paper emphasizes the need to boost domestic public and private investment in terms of both quantity and quality in order to narrow the current savings–investment gap, bearing in mind the need to ensure fiscal sustainability. Finally, the paper examines broader rebalancing strategies that will help Thailand to become less dependent on exports. These include the need to (1) improve productivity by means of technological acquisition, innovation, and skills development; (2) increase economic efficiency by exposing the non-traded sectors, in particular the service sector, to greater competitive pressures; (3) deepen the production structure and create new dynamic industries; and (4) generate new growth poles.

The Role of Macroeconomic Policies in the Global Crisis

This paper argues that the lack of timely and decisive policy action to correct domestic and external imbalances contributed crucially to the build-up of financial excesses that led to the financial crisis and the Great Recession. We focus on 2002-07 and perform a number of counterfactual simulations to investigate two central elements of the story, namely: (a) an over-expansionary US monetary policy and the absence of effective macro-prudential supervision, which permitted a prolonged expansion of debt-financed consumer spending; (b) the decision of China and other emerging countries to pursue an export-led growth strategy supported by pegging their currencies to the US dollar, resulting in a huge build-up of their official reserves, in conjunction with sluggish domestic demand in surplus advanced economies characterized by low potential output growth. The results of the simulations lend support to the view that if substantial, globally coordinated demand rebalancing had been undertaken in a timely manner, the macroeconomic and financial imbalances would not have accumulated to the extent that they did and the financial turmoil might have had less drastic global consequences.

From the ‘Hindu rate of growth’ to ‘unstoppable India’: has the services sector played a role?

India shifted from an import substitution growth strategy (ISS) to an export-led-growth strategy (ELGS) in July 1991. Consequently, liberalisation was promulgated not only in the industrial sector but in the services sector too in the post-1991 period. ‘services-led-growth strategy’ – a concomitant of ELGS – has led to an improvement in the revealed comparative advantage in the export of commercial services during the period 1990–2005. Furthermore, the openness of services and foreign direct investment in services have emerged as important determinants of gross domestic product growth during the period 1995–2005. The author therefore argues that if ISS led to the ‘Hindu rate of growth’ in the first three decades of planning, it is the services-led growth which has made ‘India unstoppable’ on the economic front.

Recession, R&amp;D Spending, and the Current Account: Bad News, Bad News, and a Little Encouragement

Coming out of the global recession, it has been suggested that certain United States’ trading partners that have relied on exchange rates policy should switch to the industrial policy, particularly, government subsidies for private sector research and development. The present paper argues that the recession itself is sufficient bad news. The prospect of our trading partners instigating an R&amp;D subsidy game in the interests of an export-led growth strategy is even more sobering—especially if the U.S. fails to respond with its own R&amp;D subsidy program. Whatever your view of the American Recovery and Reinvestment Act of 2009, one could make the case that the U.S. economy would have been better served investing in new technologies leading to new factories producing innovative products rather than simply paving a road to, at best, business as usual.

Growth of Special Economic Zones (SEZs) in India

Zones are popular instruments in developing countries for pursuing export-led growth strategies. Developing countries have built zones as models for selective policy applications and for easier integration into the world economy. India is not an exception. However, the recent Special Economic Zones (SEZs) that have come up following the SEZ Act of 2005 have created several controversies. These include concerns over accentuation of economic divides and industrial relocation. This article examines the rationale behind zone-based growth strategies and studies the international evidence on zones. It also looks closely at India’s earlier and current experience with zones. It finds that India’s new SEZs are following specific locational patterns on account of discriminatory incentive structures that are also inducing distinct product-orientations in these zones.

International Reserves Management and the Current Account

The paper assesses the costs and benefits of active international reserve management (IRM), shedding light on the question of how intense should IRM be for an emerging market. In principle, an active IRM strategy could lower real exchange rate volatility induced by terms of trade shocks; provide self insurance against sudden stops; reduce the speed of adjustment of the current account; and even allow for higher growth if it fosters exports (mercantilist motive). The message of the report is mixed - management of reserves is not a panacea. The mercantilist case for hoarding international reserves, as an ingredient of an export led growth strategy, is dubious. Done properly, IRM augments macro economic management in turbulent times, mitigating the impact of external adverse shocks and allowing for a smoother current account adjustment. These benefits are especially important for commodity exporting countries, and countries with limited financial development.

Protracted Conflict, Existential Threat and Economic Development

This article argues that a protracted conflict, in general, has strengthened the state vis-à-vis the society in Egypt, Israel, South Korea, Syria and Taiwan. Yet, the existentially threatened states, namely, Israel, South Korea and Taiwan, have pursued economic development and industrialization as a strategic objective. While all three states have been strategically important for the hegemon, the United States, the latter has encouraged them to adopt an export-oriented strategy and opened its own market to their exports. Given the rise in state strength, an existentially threatened state becomes more capable of extracting taxes and mobilizing the society for industrialization. Both Egypt and Syria, in contrast, were merely engaged in a protracted conflict. Consequently, they were not under pressure to maximize their power through industrialization and/or export-led growth strategy, and each explored, in its own unique way, short-cut solutions for regaining its occupied territory.

Foreword

Foreword Efrem Fisher, Elizabeth Allen, Sam Abrams, and Shane Perkinson Within the realm of international affairs, the biblical truism out of Ecclesiastes perhaps says it best: that at the end of the day, “there is nothing new under the sun.” Or is there? Indeed, since the end of the Cold War, debates have raged about a host of thorny issues, from the kind of polarity that the new international system will sustain, to the potential for regional blocs to emerge as players on the world’s stage. The recent emergence of the so-called ‘BRICs’ (Brazil, Russia, India, and China) into the realm of world power politics has likewise altered the tenor of popular discourse about the role of developing countries as formidable players in their own right. Given these developments, surely this is an appropriate time to explore our theme: new international players. In truth, many of today’s debates in international affairs are not strictly new, having proliferated within different contexts and moments throughout the course of human history. The same is generally true of the players involved, as well. And yet, at this moment, they are all somehow, and in some way, new again. Perhaps, therefore, what is new are the particular changes in ideas and ways of thinking. These shifts are what inspired us to approach this seemingly straightforward theme in both traditional and creative ways. Our first section, “New State and Non-State Players,” begins with a look at Brazil, penned by international correspondent Joshua Goodman. Goodman’s article is followed by Reidar Visser’s examination of the Shiite clergy in Iraq, which he argues is a non-state player par excellence whose impact extends beyond the Iraqi state to include the wider Middle East. Finally, four writers from the International Center for Research on Women round out our first section by exploring the largest group of ‘new international players’ globally: women. Our next section, “Rethinking Institutional Players,” looks at two influential international institutions, the United Nations and the International Criminal Court (ICC), with an eye towards reforming both and making them international players renewed. Journalist Matthew Lee explores power politics within the UN by examining the institution’s response to the recent violent counter-insurgency campaign in Sri Lanka, while journalist Angelo Izama discusses the problems and inefficiencies in the political strategy of the ICC in Central Africa. Our final section pays due to one of the most influential, but least appreciated, players throughout history. In “New Ideas in International Affairs,” ideas take center stage, bringing with them their potential power to alter the status quo. This section begins with Erik Jones’s timely examination of the export-led growth strategies of surplus countries, and the contribution of these strategies to the global imbalances that lay at the [End Page 1] heart of the current economic crisis. Jones’s piece is followed by an equally timely article by Ömer Taşpınar on terrorism—currently one of the greatest challenges in international affairs—in which he recommends an ideational shift from fighting terrorism to fighting radicalism. Donna Oglesby’s piece, meanwhile, calls for a new course and strategy for U.S. diplomacy, with the goal of making it more effective in a world of many rising new international state players. The section ends with Jacob Heim’s policy piece in which he advocates for the greater application of power cycle theory in national security assessments. The exploration of our theme is followed by Sean Brooks’s extensive review of Mahmood Mamdani’s recent book, Saviors and Survivors: Darfur, Politics, and the War on Terror (2009). We also congratulate our SAIS Prize winners, Sana Khan for her article on microcredit, Maany Peyvan for his photo essay on religion in India, and David Fowkes for his review of Paul Collier’s Wars, Guns and Votes: Democracy in Dangerous Places (2009). Finally, our issue concludes with a response to an article in our previous issue, Cities. We thank our advisory board for helping shape and guide this issue, and our entire staff of associate editors for their hard work. Enjoy. [End Page 2] Copyright © 2009 The Johns Hopkins University Press

Shifting the Focus: The New Political Economy of Global Macroeconomic Imbalances

The economic crisis has shifted the emphasis in the debate about macroeconomic imbalances. Where once the attention focused on deficit countries, and the United States in particular, now it centers more on surplus countries like China. The argument is that these surplus countries have fostered the crisis through their single-minded determination to pursue export-led growth. They have also distorted their domestic economies along the way. Moreover, the deficit countries cannot resolve their imbalances acting alone. The time has come to reconsider the wisdom of export-led growth strategies both in the developing world and elsewhere. If accepted, these arguments will have important implications for how the world economy is reformed.

EXPORTS AND DOMESTIC DEMAND: SOME EMPIRICAL EVIDENCE IN ASEAN-5

This study examines the importance of exports and domestic demand to economic growth in ASEAN-5, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand before Asia financial crisis, 1997-1998. The results of the Granger causality test show some evidence of bidirectional Granger causality between exports and economic growth and between private consumption and economic growth. The relationship between investment and economic growth and also between government consumption and economic growth is less conclusive. A successful sustained economic growth requires growth in both exports and domestic demand. Moreover, economic growth will increase domestic demand and exports. There is no strong evidence to suggest that the export-led growth (ELG) strategy is a main cause to Asia financial crisis.