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Does Export Lead Growth Essay

1810 words - 8 pages

Does export lead to growth? Hoang Ngoc Anh – 1001010026 – CTTTk49

Abtracts The export-led growth hypothesis (ELG) hypothesis states that export is one of the key factors of economic growth. It rose to prominence in the late 1970s and became part of a new consensus among economists about the benefits of economic openness. This study aims to discover the relation of export and economic development, digging into past data and empirical study to give a conclusion that export is a key factor for economic growth.

Does export lead to growth?

Introduction Economic Growth is perhaps the foreground goal of all nations. Across time, in pursuing this objective, varies economic hypothesis and ...view middle of the document...

In addition, in order to compete against foreign rival, export companies must continuously learn new knowledge and upgrade their facility to gain more efficiency and productivity. This specialization towards more productive export industries and away from relatively

inefficient sectors naturally increases human capital, which is the first step of growth. The second reason, mostly important for developing countries is that exports also generate foreign exchange revenue, which can be used to purchase foreign product and new technology so can increase the speed of growth as well as abridge the development time. Another argument for the export led growth hypothesis is that it may be seen as part of the product lifecycle hypothesis of Raymond Vernon. This hypothesis describes economic growth as a cycle that begins with exports of primary goods from a country, but over time, economic growth and knowledge transfer among countries change the structure of both the domestic nation and the foreigner partners. When a country develops to a higher level, involving the increase in standard of living and labor wage, domestic firms will move production of the product to other countries where production cost is lower, and market size is bigger.

Literature review There are many plausible reasons within trade theory to support the export led growth hypothesis. Most recently, examples such as the economic success of the outward oriented East Asian “tigers” – Hong Kong, Taiwan, South Korea and Singapore - economies would seem to confirm the validity of ELG hypothesis. These Tigers and their export focusing policy experienced rapid growth with current account surplus while the rest of the world struggled against economic crisis and low development during Asian financial crisis of 1997–1998 and the 2001 recession. However, the effectiveness of export promotion on a country growth is not always the same. The mixed and even opposite results of ELG policy in different countries

can be explain by the nature of this hypothesis, in the end ELG is an empirical issue, so its results depend on the country that apply ELG and the ability of this country to manage export. Furthermore, the results of the research on ELG also depend on the authors. Most authors, who look at the ELG hypothesis, usually cite the same logical reasoning. But when digging into the data, they can give different conclusion due to their differences in methods of testing the hypothesis, for example the variety in the econometric techniques used, in the samples of countries used, and in the indicator for exports used. One of the earliest works examining the ELG hypothesis includes that of Michaely (1977) and Balassa (1978). These papers, both analyzing the relation of export and growth, use the correlation technique with averaged GNP per capita growth and averaged growth in export share by Michaely, and average growth in real GNP and growth in real exports by Balassa. Both papers find a...

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