5.4 Export led growth / outward orientated strategies

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.

5.4 Export led growth / outward orientated strategies