Export-oriented industrialization
This article possibly contains original research. (July 2012) |
Part of a series on |
World trade |
---|
Export-oriented industrialization (EOI), sometimes called export substitution industrialization (ESI), export-led industrialization (ELI), or export-led growth, is a
However, that may not be true of all domestic markets, as governments may aim to protect specific nascent industries so that they grow and can exploit their future comparative advantage, and in practice, the converse can occur. For example, many
Reduced
Export-led growth is an economic strategy used by some
In addition, a recent mathematical study shows that export-led growth has wage growth being repressed and linked to the productivity growth of nontradable goods in a country with undervalued currency. In such a country, the productivity growth of export goods is greater than the proportional wage growth and the productivity growth of nontradable goods. Thus, export price decreases in the export-led growth country and makes it more competitive in international trade.[2][3]
Origins
From the Great Depression to the years after World War II, under-developed and developing countries started to have a hard time economically. During this time, many foreign markets were closed and the danger of trading and shipping in war-time waters drove many of these countries to look for another solution to development. The initial solution to this dilemma was called import substitution industrialization. Both Latin American and Asian countries used this strategy at first. However, during the 1950s and 1960s the Asian countries, like Taiwan and South Korea, started focusing their development outward, resulting in an export-led growth strategy. Many of the Latin American countries continued with import substitution industrialization, just expanding its scope. Some have pointed out that because of the success of the Asian countries, especially Taiwan and South Korea, export-led growth should be considered the best strategy to promote development.[4]
Significance
Export-led growth is important for mainly two reasons: The first is that export-led growth improves the country's foreign-currency finances, as well as surpass their
The nomenclature of this concept appears in J.S.L McCombie et al. (1994):[5]
yB denotes the relationship between expenditures and income in foreign-currency trade; it marks the balance of payments constraint
yA is the growth capacity of the country, which can never be more than the current capacity
yC is the current capacity of growth, or how well the country is producing at that moment
(i) yB=yA=yC: balance-of-payments equilibrium and full employment
(ii) yB=yA<yC: balance-of-payments equilibrium and growing unemployment
(iii)yB<yA=yC: increasing balance-of-payments deficit and full employment
(iv) yB<yA<yC: increasing balance-of-payments deficit and growing unemployment
(v) yB>yA=yC: increasing balance-of-payments surplus and full employment
(vi) yB>yA<yC: increasing balance-of-payments surplus and growing unemployment (McCombie 423)[5]
Countries with both unemployment and balance-of-payments problems are supposed, according to the dominant economic paradigm, to orient their policies towards export-led growth aiming to achieve either situation (i) or situation (v).
Types of exports
There are essentially two types of exports used in this context:
Manufactured goods are the exports most commonly used to achieve export-led growth. However, many times these industries are competing against industrialized countries' industries, which often have better technology, better educated workers, and more capital to start with. Therefore, this strategy must be well thought out and planned. A country must find a certain export that they can manufacture well, in competition with industrialized industries.[1]
Raw materials are another export option. However, this strategy is risky compared to manufactured goods. If the terms of trade shift unfavorably, a country must export more and more of the raw materials to import the same amount of commodities, making the trade profits very difficult to come by.[1]
Criticism and counter arguments
Theoretical
This line of argument runs against heterodox (and particularly Post-Keynesian) analysis. There, the investment requirements for state investment, denominated in the national currency, are never operationally constrained; any claim about the "limited" ability of the state to finance expenditures in its own currency is rejected.[6] Neither, Post-Keynesians state, is there a question of the private sector competing with the state for available funds, due to their opinions on hypotheses about "crowding out".[7][8] As to the claim about the state's inability to engage in basic, primary, "paradigm changing" investment in research and development, the work of economists such as Mariana Mazzucato has claimed that the claim is groundless.[9]
Scholars have claimed that governments in East Asia, nonetheless, did have the ability and the resources to identify and exploit comparative advantages. EOI has, therefore, been supported as a development strategy for poor countries - because of its success in the Four Asian Tigers.
This claim has been challenged by a minority of non-mainstream economists, who have instead emphasised the very specific historical, political, and legislative conditions in East Asia that were not present elsewhere, and which allowed for the success of EOI in these nations. Japanese producers, for example, were given preferential access to US and European markets after World War II.[10] Additionally, some domestic production was explicitly protected from outside competition, for an extensive period of time and until local business entities had become strong enough to compete internationally.[11] They claim that the protectionist policies are crucial to the success of EOI.[11]
Empirical
Despite its support in mainstream economic circles, EOI's ostensible success has been increasingly challenged[
Other criticisms include that export oriented industrialization has limited success if the economy is experiencing a decline in its
Nobel laureate Paul Krugman has criticized what he called the "popular views" on macroeconomic policy as they were shaped in the 1950s, and, particularly, regarding productivity and foreign-trade economic policy.[14] The "highly influential" position that "the United States needs higher productivity so that it can compete in today’s global economy", he wrote, is akin to the person supporting it “wearing a flashing neon sign that reads: 'I don't know that I'm talking about'."[14]
Logical
One of the main arguments against the assumption of export-oriented policies as potential solutions in a country's problems rests on the tenet that an economic orientation should be applicable to every country, in general and allowing for local conditions. If following an export-oriented path is beneficial for country A, then it should also be so for country B,
Notes
- ^ a b c Goldstein, Joshua S., and Jon C. Pevehouse. International Relations. 8th ed. New York: Pearson Longman, 2008.
- ^ Ünal, E. (2016) "A Comparative Analysis of Export Growth in Turkey and China through Macroeconomic and Institutional Factors" Evolutionary and Institutional Economics Review. Vol. 13 (1), pp. 57–91. DOI :10.1007/s40844-016-0036-3.
- S2CID 156910737.
- JSTOR 2600776.
- ^ a b c McCombie, J.S.L., and A.P. Thirlwall. Economic Growth and the Balance-of-Payments Constraint. New York: St. Martin's, 1994.
- ^ Wray, L. Randalla
(2014). "Modern Monetary Theory basics"
- ^ Mosler, Warren (2014). "The Myth of Crowding Out"
- ^ Mitchell, William (2011). "Destructive economic myths"
- ISBN 9780857282521
- ^ Borden, William (1984). The Pacific Alliance: United States Foreign Economic Policy and Japanese Trade Recovery, 1947-1955. Madison: University of Wisconsin Press. p. 187.
- ^ ISBN 978-1596915985
- ^ Prabirjit Sarkar (1986). "EconPapers: The Singer-Prebisch Hypothesis: A Statistical Evaluation". Cambridge Journal of Economics. 10 (4): 355–71.
- ^ "Prebisch-Singer Hypothesis - Dictionary definition of Prebisch-Singer Hypothesis - Encyclopedia.com: FREE online dictionary". www.encyclopedia.com.
- ^ ISBN 978-0393312928, p.280
- ^ "Exports to Mars", The Economist, 12 November 2011