Export-Led Growth Analysis

Export-led Growth is an economic policy aiming to speed up the industrialization process of a country by exporting goods in which the nation has a comparative advantage. The strategy implies opening domestic markets to foreign competition in exchange for access to markets of other countries. However this may not be true of all domestic markets as governments aim to protect specific emerging industries so that they grow and are able to exploit their future comparative advantage and in practice the converse can occur.

There are essentially two types of exports that are used in this context, namely, Manufactured Goods (Goods made on a large scale using machinery) and raw materials. Manufactured goods are most commonly used to achieve export-led

Japan, moreover, developed a new model of trade policy that combined relatively restrictive trade policies towards imports and inward foreign investment with aggressive promotion of export industries. The period from 1970-1985 saw the adoption of an export-led growth strategy by the East Asian Tigers – Hong Kong, Taiwan, South Korea and Singapore - and their consequent economic success. While an undervalued exchange rate was used to make the exports more competitive, these countries recognized the need for foreign technology acquisition to compete in automobile and electronics manufacturing industries. Much of the success of these four nations has been accredited to their ability to encourage the acquisition of advanced technology and to implement it more efficiently and effectively than their competitors. Their ability to acquire and develop technology efficiently was also supported by

The link between high GDP growth and export growth can be due to either a productivity improvement in the non tradable sector or the tradable sector, i.e. we have a Growth-driving Export situation or Export- driving Growth situation.
If export-led growth scenario was a valid and credible explanation for the high Gross Domestic Product (GDP) growth episodes accompanied by a high export growth, we should have been able to observe a real exchange rate appreciation in all such episodes, which occurs due to the influx of foreign exchange, as a result of booming exports. However, the data shows that among episodes characterized by high GDP growth together with even higher export growth, only about half of them are in accordance with the export-led growth hypothesis and most of the other half episodes are more likely led by productivity improvements (due to technological advancement) in the nontradable sector. The nontradable sector can play as important a role as the tradable sector in driving growth (with both GDP and exports growing