5 4 export led growth outward orientated strategies
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Economic Development. 5.4 Export led growth / outward orientated strategies. Benefits of integrating domestic economy into the world economy?. What are they?. Export-led growth – ‘easy export substitution’.

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5.4 Export led growth / outward orientated strategies

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Economic Development

5.4 Export led growth / outward orientated strategies

Benefits of integrating domestic economy into the world economy?

What are they?

Export-led growth – ‘easy export substitution’

  • Export led growth refers to a strategy where economic growth (and development) is achieved through the growth in export earnings.

  • It is an outward looking strategy because it attempts to integrate the domestic economy into the world economy and compete in world markets.

  • Generally it still involved a high level of government intervention - see page 460 Tragakes for summary and previous notes on issue.

Success of export-led growth

  • Access to larger markets, hence exploitation of economies of scale, larger sales, profits potentially.

  • Diversification into a broad range of manufactured products (from labour intensive consumables to more sophisticated capital intensive durables) and thus reduced risk and growth of high YED exports

  • Government support for education, training and research and development, need for developmental government, target setting for loans and licences.

Export led growth

Explain and show on an AS/AD diagram how increased exports can increase GDP, employment and living standards.

The Washington Consensus

  • 1980s saw shift in thinking towards neo-classical supply-side ideas

  • They did not work very well

  • Explain 3 supply-side policies and how they are meant to help deliver economic growth in developing countries

The 10 steps to Washington

  • Trade liberalisation

  • Free movement of capital

  • Sound government finances

  • Lowering marginal rates of direct tax and broadening the tax base

  • Changing spending priorities towards education, healthcare and infrastructure

  • Increasing interest rates

  • Freely floating exchange rates

  • Privatisation

  • Deregulation

  • Ensuring property rights

Impact of the policies of the Washington Consensus?

Spot the difference?

  • Did not work for countries that had not already established an industrial base via ISI.

  • Many LDCs were forced to rely on primary product exports – exploit their comparative advantage - and were encouraged to do so by IMF / World Bank in the new world of free market economics

  • Yet trade barriers (especially on agricultural products but also simple manufactured products) prevented many LDCs from achieving growth in export revenues or GDP.

  • Cuts in government spending and commitments to meet interest payments often led to cuts in spending on healthcare and education.

  • Removal of price subsidies and minimum wages meant that real wage rates fell for many of those close to or in poverty.

    See Tragakes pages 462 – 464 for summary and further reading

The New Development Consensus

  • Takes us back to something like the easy export substitution approach

  • Recognises the role that government must play in bringing about development

You work at the World Bank and realise that the Washington consensus approach has not worked. Develop a new roadmap for developing countries that can lead them from rural poverty to industrialisation and growth.

  • See pages 464 – 465 Tragakes

In pairs, work on model answers to the questions 1 – 5 in Tragakes, page 467.

Type up for homework.

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