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Export-led growth is unavoidable for the poorest countries, argues IDS Fellow
24 September 2010 - Vivienne Benson
IDS Research Fellow Xavier Cirera looks at the danger of emphasising domestic demand-led growth for poorer and small countries, set out in the United Nations' latest Trade and Development Report.
On 14 September 2010, the United Nations Conference on Trade and Development (UNCTAD) published the Trade and Development Report 2010: Globalization and Development Strategies. The report warns developing countries to rethink their current strategies for achieving growth, if they rely heavily on expanding exports.
Instead, it argues that policies should focus on domestic demand-led growth, in a bid to prevent the same disparities forming between developed and emerging countries that contributed to the financial crisis.
It calls for a rethinking of the idea of export-led development based on keeping labour costs low, saying policies should be based on a balanced mix of domestic and external demand.
Why export-led growth is unavoidable
However, Xavier Cirera questions this emphasis on domestic demand rather than exports for some countries. Dr Cirera said:
"Whilst I agree that it is difficult to envisage sufficient demand growth for developing country exports in the near future, export-led growth is unavoidable for small and very poor countries.
"Avoiding deflationary policies may be a good recommendation for larger developing countries with enough potential demand, but this notion is flawed for the poorer LDCs.
"This is because these poor countries are constrained by very small domestic markets and demand. This may make it difficult for them to achieve and sustain productivity levels that will enable them to compete in international markets and sustain high growth rates."
Diversifying exports
Dr Cirera argues that the important questions in the current economic environment are how to diversify exports towards other commodities, manufactured goods and services, and how to break into new markets and product segments of higher quality and value added.
As lead researcher on an ESRC funded project, ‘Firm Behaviour and the Introduction of New Products: Evidence using a Firm Micro Data Set in Brazil', Dr Cirera is currently conducting in-depth research into export diversification.
He said, "Diversification is crucial for achieving economic development for several reasons; firstly, diversification reduces vulnerability to external shocks; secondly, it creates learning opportunities and thirdly, it clearly correlates with high rates of growth."
While strengthening domestic demand and production may seem a sound idea for some large developing countries in the current economic context, it may prove difficult to justify for most LDCs. What is needed is more and better diversification, and more south-south trade.
Vivienne Benson works in IDS' Globalisation Team.
Related News
New research into product and export diversification in Brazil
Published: 16 Jul 2010
IDS is leading research to close a knowledge gap about the process of product and export diversification in Brazil.
Related Projects
- Firm Behaviour and the Introduction of New Products: Evidence using a Firm Micro Data Set in Brazil - The objective of this research is to contribute to the understanding of one of the most important processes required for achieving sustained economic growth in emerging and developing countries: the process of product and export diversification. (2010 - 2011)
