Is export-led growth passe?

We are moving to a new world economy, and one of the casualties of the transition could well be the East Asian export-led growth model. My latest Project Syndicate piece evaluates the risks.

Comments

[SB]

In light of the recent food crises and the need for a secure food supply by wealthy mideast countries, could there be an opportunity for a growth strategy centered on agriculture? Here's more : (http://www.chinadialogue.net/article/show/single/en/2391)

[Chandan]

The title sounds similar Krugman's 1987 piece: http://bss.sfsu.edu/jmoss/resources/Is%20Free%20Trade%20Passe.pdf

[Nathan Smith]

OK. The slowdown in the US/EU is not important, yet. If it turns into a Great Depression, that's a problem. But the export-led growth model worked great for Asia in the 1970s, when America, at any rate, was a lot worse off tan now. If "export-led growth is passe," it's for other reasons, including:

1. Everybody's doing it. Margins are small in a crowded market. When the world started imitating East Asia, the model stopped working so well (though still not terribly).

2. Base effects. In the 1970s, East Asia was economically small compared to the US. The bigger you get, the harder it is for the export locomotive to pull you. You start to need your own power source. That's a reason that the export-led model may be passe *for East Asia*, but it might still be a great idea for economies that are still very small relative to the world economy.

3. Transport costs. They matter to exporters' competitiveness, and higher oil prices are driving them up. How much that matters depends a lot on (a) a country's access to the sea, and (b) the value-weight ratio of the exports a country specializes in.

I think the export-led model will revive when China (and other now-low-income Asian countries) turns a corner and becomes a big importer. Of course, China is already importing a lot-- of *natural resources*. If it starts importing goods that are more labor-intensive and can be produced anywhere, the export-led model will be a winning strategy again.

[The Traveling Economist]

I don’t agree with the view that everybody is applying the export promotion model, at least in the optimal East Asian style. Just take a look on the development of high-tech exports as % of the total of a representative sample of LDCs (by size and location) and you will see that, in most cases, they’re not growing. Many countries that want to copy this model don’t count yet with its pre-requisites, mainly a capacity of exporting low-tech goods and a high human capital stock. Other are not even interested in following this path due to their natural resources “curse” aggravated in this moment by the rising terms of trade they confront (rising energy and food prices).

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