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Edited by Mark Setterfield
Chapter 19: Export-led Growth, Real Exchange Rates and the Fallacy of Composition
19 Export-led growth, real exchange rates and the fallacy of composition Robert A. Blecker and Arslan Razmi 1 Introduction In the past two decades, developing countries have significantly increased both their export orientation and the proportion of their exports that consists of manufactured goods.1 These shifts have been driven by several motivations, including the perceived inefficiencies of inward-oriented, import-substitution industrialization, a desire to avoid the historically recurring problem of falling terms of trade for primary commodities and a belief that manufactures offer superior long-run development prospects compared to primary commodities. The increasing reliance on manufactured export-oriented growth strategies has had some stunning successes, particularly in the so-called “four tigers” (South Korea, Taiwan, Hong Kong and Singapore) in the 1970s and 1980s and China in the 1990s and early 2000s. Nevertheless, for a large number of countries that have sought to jump on this bandwagon, the results have been disappointing. While a small group of East Asian nations have used manufactured exports to propel themselves into a process of convergence with the industrialized economies of the global “North”, most of the countries in the “South” that have specialized in manufactured exports over the past two decades have not achieved similar success. The uneven growth performance of the developing countries most specialized in manufactured exports in the past three decades is shown in Table 19.1. The growth of the four tigers (“newly industrialized Asian economies”), which averaged 7.7 percent per year in the 1980s, slowed down in the 1990s and 2000s, when...
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