export-led growth strategy by dr. ruby ojha

8/3/2019 Export-Led Growth Strategy by Dr. Ruby Ojha

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EXPORT-LED GROWTHVS.DOMESTIC DEMAND-LED GROWTH:

A POLICY CHOICE IN INDIAN CONTEXTDr. Ruby Ojha

Associate Professor,

Dept. of Economics,PGSR,

SNDT Womens

University,

Churchgate, Mumbai400020


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INTRODUCTIONThe export-led growth model was

initially upheld with the success ofAsia's miracle countries, whichachieved extraordinarily high growth

between the 1970s and mid-1990s,supposedly through export promotion.The growth records of Asian newly

industrializing countries (NICs) - inparticular, Hong Kong, Singapore,Korea and Taiwan, second-generationNICs (Malaysia and Thailand) - are

cited as such examples. 2


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INTRODUCTION

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Over the last thirty years these NICshave approximately doubled theirstandards of living every ten years.

China is the latest country to join thisgroup

The World Bank (1993) perceives thatthe experiences of these countries serve

as a model for development, a view alsosupported by the US Agency forInternational Development and theInternational Monetary Fund


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THE CASE FOR EXPORT-LED GROWTH

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export growth may represent an increase in demand for thecountrys output and thus serves to increase real output.an expansion in exports may promote specialization in theproduction of export products.an increase in exports may loosen a foreign exchange constraint

which makes it easier to import inputs to meet domesticdemand.Participating in trade, especially export production and promotion,

exposes a country to the latest and most advanced production andmarketing techniques, that brings about dynamic innovation and

technological diffusion into the economy.Since countries need precious foreign exchange for their development

needs, export earnings are a more efficient means to finance theseneeds than foreign debt .

export-led strategies allow an expansion of aggregate demand without

much inflationary pressure.


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BUT, THE SUPPORT FOR EXPORT-LED GROWTH IS NOT UNIVERSAL.

CRITICS POINT OUT THAT THEEXPERIENCES IN THE EAST AND

SOUTHEAST ASIAN COUNTRIES ARE

UNIQUE IN MANY WAYS AND NOTNECESSARILY SUSTAINABLE AND

REPLICABLE IN OTHER COUNTRIES.

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A near-collapse in internationaltrade that followed a synchronized

global recession in 2008 hasseriously dentedAsias confidencein this growth policy as demandfrom major developed economies

plummeted, leading to theInternational Monetary Fundanticipating a double-digitcontraction in world trade volume.Most of the critics argued that theemphasis on export-led growth ofmost East Asia countries had aseries of negative effects.

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PROBLEMS OF EXPORT-LED GROWTH It prevented the development of domestic market

growth

reinforced the dependency of developing countries onthe developed world

not an optimal strategy

any longer and it is risky

and dependent on the

consumption pattern ofothers

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PROBLEMS OF EXPORT-LED GROWTH CONTD. race to the bottom deterioration in developing countries

terms of trade impact of export-led growth on financial

instability issues of autonomy it suffers from a fallacy of composition

it has tilted the focus away from developmentrooted in domestic market growth It has placed workers in developing countries in

conflict with workers in industrialized countries

It has also harmed the global economy bycreatin an environment of excess ca acit and 8


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Export-led growth can workfor first comers, but it fallsapart once all try to clamberon board the export-ledbandwagon. If true, theexport-led growth paradigmwill find itself checkmated

while new supplier countrieswill be unable to competewith China.

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THE CASE FOR DOMESTIC DEMAND-LED GROWTHGiven the deficiencies of

export-led growth, developingcountries need a new model ofdevelopment and domesticdemand-led growth strategy

serves the purpose. DeutscheBank Research of July 2009says that EM-6 have been (orwill be) able to engineer a moreor less rapid recovery by

boosting domestic demand.Achieving such an outcome willrequire a new constellation ofpolicies to expand the domestic

market. 10


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DOMESTIC DEMAND-LED GROWTH RESTS ONFOUR PILLARS: improved income distribution

good governance

financial stability and space for counter-cyclical stabilization policy

an adequate fairly priced supply ofdevelopment finance.

The policies needed to put these pillarsin place are:

(1) labor and democratic rights,

(2) appropriate reform and regulationof the financial architecture, and

(3) a combination of debt relief,increased foreign aid, and increaseddevelopment assistance provided

through expanded SDRs. 11

This is an instancewhere there is notrade-off betweenethically right andefficient economic


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INDIAS CASE:

In this paper the case ofIndia has been analyzedwith respect to export-ledgrowth strategy anddomestic demand ledgrowth strategy. It hasbeen tried to find out

which strategy hascontributed more to thecountrys development.

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PRE-REFORM RELATIONSHIP BETWEENEXPORT AND NNPFC

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Particulars

Values

i 1950-51 to 1990-91

^1 12809.55011

^2 15.0922

Standard error of 1 (1) 3648.1689


Table value of Z test for 1 and 2 at 5% level of significance 1.95

Table value of Z test for 1 and 2 at 1% level of significance 2.58

Calculated value of Z test for 1 35.112

Calculated value of Z test for 2 37.4023

The calculated F ratio is F* 1398.9595

R2 0.973

Coefficient of correlation ( r ) 0.986


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POST -REFORM RELATIONSHIP BETWEENEXPORT AND NNPFC

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Particulars Values

i 1991-92 to 2008-09

^1 531607.0395

^2 5.2525



Table value of t=test for 1 and 2 at 5% level of significance 2.12

Table value of t=test for 1 and 2 at 1% level of significance 2.92

Calculated value of t=test for 1 8.2275

Calculated value of t=test for 2 28.1163

The calculated F ratio is 790.5263

R2 0.98

Coefficient of correlation 0.99


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PRE- REFORM RELATIONSHIP BETWEENPRIVATE FINAL CONSUMPTION EXPENDITUREAND NNPFC

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Particulars Values

i 1975-1990-91

^1 4352.14251

^2 1.34063



Table value of T test for 1 and 2 at 5% level of significance 2.145


Calculated value of T test for 1 -1.1635

Calculated value of T test for 2 62.4797


R2 0.996

Coefficient of correlation (r) 0.998


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POST-REFORM RELATIONSHIP BETWEENPRIVATE FINAL CONSUMPTION EXPENDITUREAND NNPFC

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Particulars Values

i 1991-92 to 2007-08

^1 275056.423

^2 1.5766951





Calculated value of T test for 1 -5000011.6761

Calculated value of T test for 2 30.37363


R2 0.984

Coefficient of correlation (r) 0.992


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CONCLUSIONSIt is argued by Jesus Felipe (2003) that the

encouragement of a gradual shift to DomesticDemand Led Growth is a welcome effort. However,perhaps choosing either export-led growth ordomestic demand led growth is not the issue.

Firstly, because these two strategies need not beincompatible strategies.Secondly, because the countries in the region need

some form of export-led growth to achieve economiesof scale. It is about achieving a golden combination

between export-led growth and domestic demand ledgrowth. And

Thirdly, because the discussion of the policies toresume growth has to be framed in the more generalcontext of what is constraining growth today

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CONCLUSIONS CONTD.

It is proved on the basis of the above empirical analysisthat growth of India is based on a combination of bothdomestic demand components and exports. In fact, interms of technology deepening and "learning bydoing," growth in both sectors will be complementaryand mutually reinforcing. successful and sustainedgrowth requires growth in both domestic demand andnet exports. It is when one strategy isoveremphasized at the expense of the other that the

growth strategy becomes unstable. 18


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CONCLUSIONS CONTD.In the words of Blecker:

What is not feasible is for

all countries to attempt to

achieve trade surplusesby promoting their exportswhile simultaneously

restricting their imports orrepressing consumerdemand

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THANK YOU

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export-led growth strategy by dr. ruby ojha

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