The Myth of Export-Led Growth - Economic Research Forum (ERF)

The Myth of Export-Led Growth

Khalid Abu-Ismail


Date:
November, 2003

NO.
335

Length:
33 pages

Topic:
O1. Economic Development

The relationship between openness and economic growth is rather complex. As Taylor (91) put it: ‘thinking about it involves several levels of abstraction: empirical; theoretical; political and ideological’. The present view focuses on the empirical level per se, but with minor excursions to the theoretical and historical levels at times. The central theme follows a wellestablished structuralist ‘ideology’ of asserting that arguments for a causal relation between economic policies and outcomes (in this case export promotion and growth) are meaningless outside a country’s historical and institutional context, especially its dynamics of growth and structural change. Building on this pre-analytical foundation, this paper begins by examining a strand of post-Keynesian growth theory developed by Thirlwall (1979), which emphasizes the role of exports in driving the process economic growth. The main critique here is that Thirlwall’s equation will necessarily yield statistically significant results for cross-country analysis. Several other basic empirical and theoretical problems with the Kaldorian model are also highlighted in this paper. This paper also asks how outward orientation affects growth at the country level, using Taylor’s (91) study on economic openness as a main empirical and theoretical reference. Stylized facts on trade (commodity and service) and growth examined here suggest Taylor’s (91) conclusion on trade and growth is still essentially relevant; ‘trade does not seem to be closely related to the way economies perform. Fast growing economies are more or less open, have diverse patterns of specialization and their success is not obviously led by exports, industrial or otherwise.’ Finally, crosssectional analysis of the relation between exports and growth yields little correlation outside the cluster of outlier (oilbased and export-savvy) economies. The theory of export-led growth cannot therefore be a general one; export-led growth remains a unique and predominantly exclusive phenomenon.

Policy Affiliates

Khalid Abu-Ismail

Chief of Economic Development and Poverty Section, United Nations Economic and Social Commission for Western Asia


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