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Export-led growth is an economic strategy used by developing nations to modernize their societies and raise living standards. It involves finding a market for something that cannot be easily supplied by other nations, generating positive cash flows to fuel imports. However, changes in factors such as trade barriers, energy costs, and technological innovation have cast doubt on the system. Developing countries are now focusing more on domestic growth as export avenues dry up.
Export-led growth is an economic approach that many developing nations seek to modernize their societies and raise living standards. It is based on the principle of finding a market for something on the international scene that cannot be easily or efficiently supplied by other nations. As the developing nation establishes itself in this market, it is able to generate positive cash flows that can fuel the import of goods and services it cannot produce itself. Good examples of export-driven growth nations are the oil-exporting nations of the Middle East and rapidly developing economies such as India and China.
An economic strategy of export-led growth is usually attempted with manufactured products and information services or raw materials. The former offers more flexibility to expand exports, as raw materials are sold at reduced prices and eventually become scarce commodities. In the decades from the 1960s through the 2000s, Asian sector nations focused on manufactured exports, while some Latin American and African nations leaned towards commodities. While the former approach has led to higher domestic productivity and liquidity inflows in the past, a downturn in global economic conditions since 2011 now calls this growth model into question.
China as a preeminent example of export-led growth has had policy success since 1978 due to its accession to negotiations through the World Trade Organization (WTO), abundance of cheap labor, and aggressive domestic industrialization program . While China’s growth rate continues at a high level, its very low consumption rate per household and reinvestment of profits by corporations have prevented it from developing a strong consumer economy to modernize lifestyles in general. Export-led growth in China has mainly benefited the government in terms of tax collection and Chinese companies in terms of repaying investment in capital equipment, while per capita incomes have remained low. China’s high savings rate, therefore, paralleling India’s export-induced growth model, ends up being invested in foreign markets instead of directly benefiting the citizenry.
Major drivers of international trade have led to the success of the export-led growth model for many nations. These include an open US market for imported goods and services as the largest consumer economy in the world, the reduction of trade barriers through the processes of globalization, and an expansion of standardization in many industries so that goods and services can take a universal utility. Changes in these factors have begun to cast doubt on the system, as the United States and the world economy have been in a prolonged recession since 2011, and manufacturing overcapacity now exists in many countries worldwide. developing countries that have adopted this economic strategy. Other factors that could limit export-led growth include rising energy costs and growing scarcity of natural resources, as well as a slowdown in technological innovation in electronics, which has been a primary area fueling that growth.
Developing countries like India are approaching the limits of the old export model with a hybrid one-solution approach – exporting information services, which require very limited resources and support long-term growth models. Financial account imbalances between export-driven developing nations producing manufactured goods and industrialized consumer nations with large debt loads purchasing them are seen as unsustainable in the long run. This is forcing developing countries to focus more on domestic growth as export avenues dry up and consumer nations to cut back on wasteful spending. The United Nations Conference on Trade and Development (UNCTAD) sees higher wages in developing countries and reductions in unemployment figures overall as key conditions to be addressed if export-led growth is to continue to be a successful model for developing countries.
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