The concept
export-led growth implies that an economy whose growth is dominated by the
expansion on exports. The expansion in export must be sustained and this will
be brought about if the export multiplier is high and a substantial promotion
of export proceeds ploughed back to increase the economy capacity. The export
multiplier is the ratio of the increase in the national income resulting from
an increase in export. An export-led growth connotes the implementation of some
policies that make an economy successful in developing its export markets
(Krueger, 1983). Such policies give incentives to economic operators to earn
and/or to save foreign exchange while avoiding discriminating incentives
across
commodity groups.
A concept that is usually considered
together with export-led growth, particularly in designing an industrial
development strategy is import-substitution which is a strategy to reduce the
imports of consumer goods and produce them domestically, while balance of
payment problem have the adoption of an import-substitution strategy, the main
motivation for it has been the desire to encourage rapid industrialization and
economic development (Jhingan, 2006). The policy measures usually adopted to
pursue import substitution strategy includes the use of import duties, quotes
and multiple exchange rate as price protective device, while tax exemptions and
subsidies are applied to reduce cost of import-competing industries. Developing
countries usually start their industrial development import-substitution
strategy and subsequently shift to the export-led growth strategy.
The evidence is that industrial
development improves under the two strategies, but it tends to be much better
and sustainable under the export-promotion strategy. In addition, export
promotion helps to reduce dependence on the international economy as the
increase in foreign earnings and diversification of export market induce a
greater flexibility of the economy. The interest to shift to export-led growth
strategy had been motivated largely by the rather disappointing results of
imports substituting industrialization such as, rather than reduce dependence
on the international economy as it is designing to be, it actually increased
international dependence because the activities involved are usually import
intensive and cannot be sustained without continuous importation of both
intermediate and capital goods (Krueger, Ibid, 1983).
Since 1960’s, the export promotion
has been adopted increasingly by a
growing number of developing countries, like Korea, Taiwan, Singapore,
Hongkung, Brazil, and Chile etc. The successes attained by these countries have
conferred on them the status of the Newly Industrialized countries (NICs) or
semi-industrialized countries (SICs)
Tyle (1981) investigates whether
countries pursuing export promotion policies grow faster than those that are
not pursuing it. Specifically, he sought to determine the precise export
growth, economic policies and economic growth using a sample of 55
middle-income developing countries for the period 1960-1977. His result
revealed a positive correlation between growth and export expansion as well as
capital formation and economic growth.
His result was also in line with the
previous studies conducted by Michealy (1977) and Balassa (1978). While
Michealy found a positive association between per capital income growth and
proportional in export-GNP for 23 most developed countries in the sample and no
relationship for the poorest countries in the sample. Balassa found strong and
statistically significant positive correlation between export expansion and
economic growth for 11 countries such as Korea and Taiwan and poor performing
countries such as Chile and India.