International trade played an important role in the economic development of North America and Australia in the nineteenth century and that of East Asian economies in the second half of the twentieth century. East Asia’s growth contributed to increased living standards and reduced inequality as the new prosperity was widely shared among its population. In Malaysia and Thailand, for example, the level of poverty was reduced from almost 50 percent in the 1960s to less than 20 percent by 2000.
Central to the success of these countries is the promotion of exports. Governments provided credits, restricted competing imports, and developed export marketing institutions. As they increased their exports to wealthy countries, their economies grew at 7 to 8 percent per year.
The export-led model may have worked for a few countries during the time when most developing countries pursed import-substitution policies—substituting domestic production for manufactured goods for the exportation of raw materials. There are a number of limitations to export-led growth when many countries, including China, begin to use it. Here are some of its potential limitations:
- It is difficult for all countries to increase exports by 8 to10 percent per year when the world economy grows at 2 or 3 percent per year. It is not possible for every country to have a trade surplus.
- The major importing nation, the United States, cannot continue to run large trade deficits. Other potential destinations for global exports, South Korea, Japan, and Germany, also rely on an export-promotion policy to sustain economic growth and are not willing to run large deficits.
- China and other East Asian economies have not taken measures to open their markets in order to absorb increasing exports from the rest of the world. In the absence of other sources of economic growth, focusing on the U.S. market is unsustainable in the long run.
- Many multinational corporations are already experiencing flat or shrinking revenue growth due to reduced demand reflecting the natural limitations of export growth (see Table 1.4).
Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.
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