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The Future of Export-Led Growth: a general assessment

The Future of Export-Led Growth: a general assessment. Otaviano Canuto Vice President and Head of Network Poverty Reduction and Economic Management The World Bank. Presentation at the Carnegie Endowment for International Peace June 29, 2009. Key Messages.

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The Future of Export-Led Growth: a general assessment

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  1. The Future of Export-Led Growth: a general assessment Otaviano Canuto Vice President and Head of Network Poverty Reduction and Economic Management The World Bank Presentation at the Carnegie Endowment for International Peace June 29, 2009

  2. Key Messages • Export-led growth strategies propelled developing countries to higher levels of economic growth over the past two decades • Current financial crisis triggered a decline in trade and the diffusion/deepening of export-led growth strategies tends to become harder • Trade openness and export diversification remain key drivers for growth and development but substitutes for currency undervaluation and large current-account surpluses will have to be used

  3. 1. EXPORT-LED STRATEGIES AND THE LONG BOOM

  4. Financial crisis after a long boom Developing Growth of real GDP, percent High-income Source: World Bank: 2009 GEP.

  5. Global current account (im)balances Source: The Turner Review, FSA, March 2009

  6. US current account deficit and gross capital flows Source: The Turner Review, FSA, March 2009

  7. Foreign-ownership of marketable US Treasury bonds as percentage of total amounts outstanding Source: The Turner Review, FSA, March 2009

  8. Household debt as proportion of the GDP Source: The Turner Review, FSA, March 2009

  9. 2. BASIS OF GROWTH: EXPORTS, TRADE SURPLUS, OR INDUSTRIALIZATION?

  10. Rapid growth associated with openness Average real GDP per capita growth (1997-2007) Real Exports / GDP in 1997 Source: World Bank Group - DECPG

  11. Speed of openness positively associated with faster growth Change in Real Exports / GDP (2007-1997) Average real GDP per capita growth (1997-2007) Source: DECPG

  12. Dependence on fewer exports exposes countries to terms of trade shocks Developing Countries: Terms of trade volatility (1996-2006) Terms of trade volatility Source: Gamberoni and Newfarmer, 2009 based on authors calculation based on World Bank, World Development Indicators

  13. Necessity products are more inelastic and less affected by demand shocks US Import Growth by Industry (in U.S. dollars relative to the same month last year) • Foodstuffs • Necessities - Medical stuff • Innovations - Cell phones - Environmental products • Services

  14. Services trade is more robust Source: Borchert and Mattoo (2009)

  15. Source: Rodrik, D. , “Growth after the crisis”, 2009

  16. Source: Rodrik, D., “Growth after the crisis”, 2009

  17. Source: Rodrik, D., “Growth after the crisis”, 2009

  18. Export-led Growth • Revisiting Arthur Lewis and HlaMyint • A non-linear and non-spontaneous leap from traditional non-tradables to non-traditional tradables (institutional weaknesses and market failures) • Undervaluation as a particular industrial policy • Relevance of local technological learning as a complement to structural change • Over-absorption in industrial countries made possible by structural change in developing countries

  19. 3. THE CRISIS AS A TURNING POINT

  20. Pace of decline in trade is easing on a momentum basis goods exports, nominal, qtr/qtr ch% (saar) Developing Countries Source: Thomson/Datastream

  21. Does this signal signs of recovery? Source: World Bank Development Economics Prospects, June 2009 Source: Baltic Dry Index, June 2009

  22. - Deleverage and Financial Introspection: less external finance- Lower growth in industrial countries (effects of the crisis on the potential growth rate)- Less tolerance with current-account large imbalances The New Global Environment Source: Barclays Capital, March 23, 2009

  23. Capital flows down by two-thirds from first-quarter 2008 levels Source: DECPG Finance Team.

  24. Implications for Export-led Growth • Export pessimism and the “fallacy of composition” • Flying geese and the recent boom features • In the absence of undervaluation, subsidies to promote tradables? • A higher role for domestic demand expansion? • Shifting geographical distribution of global demand? • Open trade still fundamental (inc. to circumvent mismatch between local production and demand & to help small countries accrue economies of scale)

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