Meaning:
Export-led growth is a policy strategy and a process by which a country aims at accelerating its rate of economic growth by relying upon an expansion of its exports.
Its objective is to derive several growth-related benefits from export expansion, such as providing employment to its hitherto unemployed and underemployed resources, higher rate of capital accumulation, up gradation of technology through greater imports, and so on.
Theory tells us that economic development of a country can be stimulated by several factors. And amongst others, a central role is played by
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i. An increase in the quantity and quality of its productive resources; and
ii. Their more productive utilisation.
The strategy of export-led growth is devised to strengthen these two contributory factors. In this strategy, a country tries to specialise in those products in which its factor endowment imparts it a comparative advantage.
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This means that the said country tries to increase employment of its unemployed or under-employed resources.
Viewed from another angle, it is a strategy of more productive allocation of its productive resources and thereby acceleration of its economic growth.
It is also in the nature of things that international trade, together with other economic contacts that are associated with it, provides a profitable channel for the inter-country transfer of technology. The benefits of research and development undertaken in one country tend to spread to its trading partners as well.
International trade stimulates growth of trading countries both by what may be termed “demand motoring” and “supply motoring”.
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This means to say that international trade brings into operation a continuous interaction between demand and supply forces and helps them accelerate their growth rates. For example, trade adds to employment of their resources.
This strengthens the demand of both traded and domestically consumed products. The resultant increase in production enables the producers to take advantage of the economies of scale, cut costs and prices, and stimulate demand still further.
Evaluation:
The debate is still inconclusive as to whether a country can rely upon a strategy of export-led growth.
International financial institutions like the IMF, the World bank, and the Asian Development Bank, as also several economists like Sachs and Werner, have been forceful advocates of export-led growth.
In support of their claim, they cite the cases of those East Asian countries which have successfully pursued this course of action.
In contrast, there is an equally strong view that there is no guarantee that the strategy of export-led growth will always succeed; it can be of help only if overall circumstances are favourable to this approach.’
For example, the growth economist, Hla Myint believes that a relentless pursuit of export promotion by a country runs the risk of producing a “dual economy”; that is, an economy which is characterised by some “patches” (also termed “enclaves” or “purple spots”) of economic growth surrounded by underdeveloped areas.
Similarly, some economists think that the consumers of an open, trade promoting economy (and more so those of a country pursuing export-led growth strategy) face a higher risk of “demonstration effect” which can retard its rates of saving and capital accumulation.
Some economists point out that, in the very nature of things, exports of poor developing countries tend to suffer from deteriorating terms of trade, so that a major portion of the benefit of growth in their productivity is appropriated by the richer countries.