The future of export led growth Eduardo Zepeda Carnegie Endowment for International Peace United nations Development Programme 29 June 2009

The facts Exports have grown faster than income. Growth is correlated with exports. Even for countries with a stable exports-to- gdp ratio, exports tend to grow faster than gdp The change in exports is positively correlated with gdp, even if we exclude exports from gdp

Export Growth and Output Growth, Source: Growth-Led Exports: Implications for the Cross-Country Effects of Shocks to Potential Output. Joseph E. Gagnon The. Berkeley Electronic Journal of Macroeconomics, vol. 8 (2008), pp. 1-28

The case for export led growth The static argument: Exports shift resources according to comparative advantage Exports shift resources from non tradables to tradables From low to high productivity activities

The case for export led growth The dynamic argument: Transfer of technology Economies of scale Learning by doing FDI plays a key role

The case for export led growth The development argument: By favoring the use of resources according to their availability, export-led-growth is likely to increase the demand for unskilled labor thereby improve distribution and reduce poverty

The policy implications Export led growth has been widely embraced structural adjustment strategies It has been used as an argument for trade liberalization concessions to foreign direct investment overall pro-market policies (some financial and monetary implications will be discussed later)

Export led growth, the issues : Heterogeneity of results Mexico, Malaysia, Hong Kong and Thailand have a similar average export/GDP ratio (10%), but average growth rates are about 4% for Mexico and between 6 and 7% for the later three. (Data are for ) Uruguay and Egypt have the same export ratio (5%), but the first has an average growth rate of 2% compared to 5% for the second.

Heterogeneity of results Between 1960 and 2004: Mexico, Malaysia, Hong Kong and Thailand have a similar average export/GDP ratio (10%), but average growth rates are about 4% for Mexico and between 6 and 7% for the later three. Uruguay and Egypt have the same export ratio (5%), but the first has an average growth rate of 2% compared to 5% for the second.

Heterogeneity of results Export Growth and Output Growth, Source: Growth-Led Exports: Implications for the Cross-Country Effects of Shocks to Potential Output. Joseph E. Gagnon The. Berkeley Electronic Journal of Macroeconomics, vol. 8 (2008), pp. 1-28

Heterogeneity of results Haussman, Hwang, Klinger, Rodrick have shown the importance of –what you export and –what exports you choose to promote For the income and development outcome

Colombias Evolution in the Product Space Colombia 1975 Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008

Malaysias Evolution in the Product Space Malaysia 1975 Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008

Malaysias Evolution in the Product Space Malaysia 2000 Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008

Colombias Evolution in the Product Space Colombia 2000 Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008

A Visual Representation of the Product Space Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008

A Visual Representation of the Product Space Source: Achieving Export-Led Growth in Colombia R Hausmann, B Klinger. CID Working Paper No. 182, 2008

Undue specialization in export markets Promotion of exportables by small-farm producers ( fruits, vegetables, flowers) Last year dramatic changes in prices of wheat, rice, maize, etc. had an important impact Valdes and Foster analyze the case of Chile and argue that those in exportables and non-trables loose, but those that remain in import competing goods gained. Underscoring the importance of the domestic market and diversification

Distribution and poverty More often than not, trade liberalization (export promotion) have concentrated income The impact on poverty is small (Brazil, Madagascar, Mexico, etc.) Vulnerability to price changes

The impact of the crisis The crisis: –Fall in exports –Protectionism (tariffs, non-tariff protection, subsidies, discrimination vs imports) –Over-reacting Export led-growth recovery path? –Not very likely –Neither marginal

Growing through the crisis We might turn to Growth-led-exports –We might consider increasing developing countries domestic demand A successful export led-growth strategy includes industrial policy Alternative sources of export growth: –South-south

Concluding remarks Export led growth, still an option Combine with the promotion of domestic market Avoid vulnerability (agriculture), promote diversification Restore selective industrial policy Articulate economic and social policies