<doc><title>Export Promotion</title>

Export promotion policies reflect the interest of national governments to stimulate

exports. Subsidies, tax exceptions, and special credit lines are the main instruments used

to promote exports. The regulatory aspects of export promotion changed significantly in

the late twentieth century. In the past export promotion activities were not substantially

regulated, but increasingly since the creation of the World Trade Organization (WTO) in

1995 some export promotion activities have been identified as trade-distorting practices.

The WTO has devised rules that allow countries that have been affected by the export

promotion practices of their trading partners to use the WTO’s dispute-settlement

procedure and in some cases retaliate.

Export promotion is sometimes seen as a complementary development strategy to import

protection. While import protection usually allows infant industry to develop, export

promotion allows access to external markets. Foreign demand is often required by the

limited size of domestic markets and the need to achieve economies of scale, essential in

many productive activities. In a 1984 article Paul Krugman argued that, under increasing

returns to scale, import protection may act as a form of export promotion, because in this

case protection would allow considerable gains in terms of productivity that would

enhance the possibilities of exporting. However, in policy circles export promotion or

export oriented industrialization (EOI) is seen more often as an alternative development

strategy to import substitution industrialization (ISI).

laissez-faire bias, while the other emphasizes the role of state intervention in promoting

exports. Conventional wisdom suggests that an emphasis on exports forces integration

into world markets and a more efficient allocation of resources, because external markets

impose discipline by eliminating uncompetitive firms. In other words, exports affect

positively the supply side of the economy. This view, exposed by Ian Little, Tibor

Scitovsky, and Maurice Scott in 1970 and by Bela Balassa in 1971, was influential within

the World Bank and the International Monetary Fund (IMF), and it shaped the Structural

Adjustment Programs (SAPs) of the 1980s and influenced the liberalization strategy of

the Washington Consensus. The studies by Anne O. Krueger and Jagdish Bhagwati, both

in 1978, and by Demetris Papageorgiou, Michael Michaely, and Armeane M. Choksi in

1991 suggested that ISI policies generally did not produce sustainable increases in

income per capita and that export promotion policies were more appropriate for achieving

that goal. Export promotion, in this view, is associated with liberalization and market

reforms.

Defenders of outward orientation tended to argue that EOI was behind the successful

experience of the Asian countries. The World Bank’s 1993 report The East Asian Miracle

supported the view that East Asian economies’ successful export performance resulted

from the implementation of market-friendly policies. Several authors have shown the

limitations of the World Bank position. Ajit Singh, in his 1995 paper “The Causes of Fast

Economic Growth in East Asia,” argued that despite the strong export orientation, the

East Asian economies were not fully integrated with the world economy and that ISI was
an integral part of the East Asian strategy in the 1950s and the 1960s. The equalization of

export orientation with free trade is also misleading. In her 2001 The Rise of “the Rest”,

Alice H. Amsden argued that the state intervened heavily in the economy of successful

least developed countries (LDCs). In the East Asian economies, protection, conditional

on export promotion, allowed import-substituting infant industries to become

internationally competitive export-oriented industries. More generally Francisco

Rodríguez and Dani Rodrik, in an influential 2000 article published in the National

Bureau of Economic Research (NBER) Macroeconomics Annual, showed that the

evidence for a negative relationship between trade barriers and economic growth is weak

at best.

The alternative view emphasizes the role of exports in expanding demand, in contrast

with the conventional view that emphasizes supply effects associated with improved

resource allocation. Higher demand provides an outlet for producers in economies with

relatively limited domestic markets. The foreign trade multiplier, developed by Roy

Harrod, indicates that net exports have a positive effect on the level of activity. Nicholas

Kaldor argued that higher levels of exports lead to strengthening productivity, lowering

unit costs, which would then positively impact exports. This positive effect of exports on

productivity, known as the Verdoorn effect, reduced unit costs and led to further

increases in export in a cumulative process of economic development formalized by

Robert Dixon and Anthony Thirlwall in their 1975 paper. The notion of a circular and

cumulative process of growth led by exports harks back to Adam Smith’s vent for surplus

principle.
The alternative view also differs from conventional wisdom in that it does not equate

export promotion with free market policies. Raúl Prebisch, in a United Nations 1964

report, emphasized the importance of export promotion and access to the markets of

developed countries to promote industrialization in LDCs. More importantly, to avoid

recurrent balance of payments crises, LDCs should diversify their exports rather than rely

on commodity exports. Prebisch argued that LDCs should replace traditional commodity

exports with manufactures or semi-manufactures exports. Industrial policy would have a

central role in promoting export diversification. State selective intervention, by providing

support for research and development (R&D), imposing restrictions on licensing and

royalties, and coordinating with and among private sector agents, is central to increase

and diversify exports.

Several authors have also emphasized the limitations of the EOI strategy. Robert A.

Blecker, in his 1999 essay “The Diminishing Returns to Export-Led Growth,” noted that

export-led growth is a strategy that cannot be pursued by all countries at the same time.

Export promotion requires that at the other end there is an importer of last resort, in other

words, a country with the international reserve currency and an incredible appetite for

imports. Also the integration of China into the world economy and its relatively low labor

costs suggest that countries with higher labor costs would find it increasingly difficult to

pursue export oriented development strategies. The global imbalances that result from

simultaneous export promotion efforts around the globe are a threat to the stability of the

global economy.
<bh1>Bibliography</bh1

<bibcit>Amsden, Alice H. 2001. The Rise of “the Rest”: Challenges to the West from

Late-Industrializing Economies. Oxford: Oxford University Press.</bibcit>

<bibcit>Balassa, Bela. 1971. The Structure of Protection in Developing Countries.

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<bibcit>Bhagwati, Jagdish. 1978. Anatomy and Consequences of Exchange Control

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<bibcit>Blecker, Robert A. 1999. The Diminishing Returns to Export-Led Growth.

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<bibcit>Papageorgiou, Demetris, Michael Michaely, and Armeane M. Choksi, eds. 1991.

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<bibcit>Rodríguez, Francisco, and Dani Rodrik. 2000. Trade Policy and Economic

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<bibcit>Singh, Ajit. 1995. The Causes of Fast Economic Growth in East Asia. UNCTAD

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<bibcit>Williamson, John. 1990. What Washington Means by Policy Reform. In Latin

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<bibcit>World Bank, The. 1993. The East Asian Miracle. Policy Research Report, World

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<byline><first>Matías</first> <last>Vernengo</last></byline>
<affl>University of Utah</affl></doc>