The Importance Of Export
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Published: Thu, 18 May 2017
Export is essential part of the Trade. Among the word export is considered as “export led growth” hypothesis or theory or assumption for a countries development. Export led growth is very debatable issue around the word and different opinions of economists. Economists strongly beliefs that to measure economy growth is really complex which depends on various factors like trade, capital accumulation (both physical and human), price fluctuation, income distribution and political condition as well as many uncertain characteristics (Emilio 2001).
From the last three decades export led growth has been issue of substantial research and empirical examination (Mahadevan 2007). The export led growth is always debated topic in the literature on Trade and development. The relationship between exports and economic growth is one of the main comprehensively investigated issues on the Development and empirical literature. There is argue on whether countries should encourage export sector to gain economic growth climaxed into which is identified as Export- Led Growth (ELG), ELG indicates that countries adopt an external direction tend to achieve superior economic performances (Galimberti 2009).
There are lots of different views on like exports as an engine of growth or assume like it as only handmaiden of growth and however others proposes that there is simultaneous relationship between the two (Mohammad & Karunaratne 2004). Most of studies concentrate on the relationship between exports and GDP while some of such as focus at relationship between exports and Total Factor Productivity (TFP) growth (Hatemi-J & Irandoust 2001), (Hacker & Hatemi-J 2003) and (Bernard & Jensen 2004) , others such as examined the relationship between exports and labour productivity growth (Kunst & Marin 1989), (Marin 1992) and (Thangayelu & Rajaguru 2004). At wider level, “the focus of the debate is on whether or not a country is better served by orienting trade policies to export promotion or import substitution”(Giles & Williams 2000) and Export led growth debate is focus on Is a country better processed by pointing export promotion or trade policies or to import substitution(Bhagwati 1988).
The theory of neo- classical trade supports that export can contribute to economic growth of the country whereas some argument that the controversies are highly non-rational and there is not firm based from economic theory (Dani 1994), in addition countries’ empirical evidence such as South Korea, Hong Kong, Singapore, Taiwan, Malaysia, Thailand and China defends the neo-classical arguments (Mohammad & Karunaratne 2004). The sensational growth operations of these countries have motivated many to illustrate trade policy as a fundamental component of economic development (Krueger 1998) (Sachs & Warner 1995).
Consequently, the aim of this study is to examine the export led growth using the one of the developing country. The mainly focus on a single developing country, analysing empirically between the diversification of the export and the economic growth of the country by identifying the country’s export programmes and strengths and weaknesses. Thus, the final purpose of this study is to measure the significance of exports in the developing country how export leads growth of the economy.
Globalisation and Export
“Globalisation” concerns to the developing interdependence of countries consequential from the growing international trade, finance, people and ideas in one universal open market. The main factors of this integration are International trade and cross-border investment flows.
Economic globalisation is not a new remarkable development. There is not particular definition of globalisation but economists usually use the term to refer to international integration in commodity, capital and labour markets (Bordo, Michael & Taylor 2003). There have been two phases of the Globalisation (BALDWIN & MARTIN 1999). The first phase started proximately the mid 19th century and declined with the beginning of World War I and the second phase began in the consequences of the World War II and prolongs today. Many economist argue that it begun as early as the second half of the 19th century and decreased with the start of World War I (Taylor 2002),(Kenwood & Lougheed 1999). In the both phases of Globalisation the output growth and rapid trade went together with the significant changes in the world economy. There is one precious lesson from the history that globalisation has not been horizontal process. A number of international institutions instituted in the come around of World War II – World Bank, International Monetary Fund (IMF), and General Agreement on Tariffs and Trade (GATT), World Trade Organisation (WTO) established in 1995. They all have played a great role in encouraging free trade instead of protectionism.
According to Mike Moore as well the past Director General of the World trade Organisation (WTO) “Globalisation has joined imperialism, colonialism, capitalism and communism in becoming an all purpose tag, which can be wielded like a club in almost any ideological direction. It is the defining political economic and social phenomenon of the new millennium” (Moore 2003, p. 15). There are lots of definitions given by different institutions or organisations like World Bank (Stern 2002, p. 53), Organisation for Economic Co-operation and Development (OCED 2002, p. 20), International Monitory Fund (IMF) (Krueger 2002) and in simple terms globalisation define as international trade and diversification of business one country to another country in terms of human power, commodities or services. According to OCED’s 2006 report one of the important features of the globalisation is reducing the barriers of trades and Foreign Direct Investment is becoming essential factor in the world-wide process of industrial reforming and the growth of authentically global industries.(OECD 2006).
Over the last two decades, globalisation has excellent devoted a boost to world trade, has risen one and a halftimes quicker than world output, and the variation has even been noticeable superior in current years as world trade development accelerated very sturdily (Giurgiu 2009). The scope of exports and imports as a ratio of GDP is constantly rising, reason behind that is many countries in the world are giving opportunity to do international trade. Another reason for globalisation is rapidly increase due to free trade, customs unions and other types of co-operation between countries. According to Welfens (1999) defines a examination involving export exposure and import penetration would be considered as example of globalisation and Heckscher purported that export flow are foundation on comparative advantage and economics(Tayeb 2000, p. 15).
Every coin has pros and cons same as globalisation is also a debatable issue, there are some positives effects and some are negatives. So at the same time gives benefits and creates new threats to the societies, individuals and economic systems. There are uncertainties that it might aggravate the space between rich and poor, might be within the country or cross the country, making new fears to human safety in terms of financial instability, political, and cultural insecurity and environment deficiency (Martens & Raza 2010). In other words, the advantageous, pioneering and dynamic aspects of globalisation are being annoyance, and accordingly some more counteract, by forces that create interference and marginalisation, such as exodus and population growth, the appearance of contagious infections, expanding inequalities in development world-wide, weather fluctuation, an immediate loss of bio-diversity and the shortage and pollution of natural resources (Rennen & Martens 2003).
Facts and Figure of economy
According to the data of the World Trade Report of 2008, after World War II international trade come back with excellent growth which was noticeable with world commodity exports, increased by more than 8 per cent annum in actual 1950-1973 period terms over. Again there was negative impact on the trade growth subsequent reasons, impact of two oil price shocks, internal presser of inflation caused by monetary diversification and inadequate macroeconomic adjustment polices. In 1990s, trade increased because of the partly motivation by advance resolution in the information technology sector. Although in the year 2001 the small retrenchment of trade origin by the dotcom crisis, the year 2000-07 period the average extension of world commodity exports constantly rise with averaging 6 per cent . The whole average from 1950 to2007 period trade extension on averaged by 6.2 per cent which is much solid than the first phase of the globalisation from 1850 t0 1913 (World War I period). After World War II the price of dollar was increased very quickly before World War I the trade insignificant expansion of the past period is more than double as fast as in the former period (9.8 per cent versus 3.8 per cent per annum) (WTO 2008).
GDP of the World (all data are in US dollars US)
During the financial crises on year 2008 the estimated world GDP was 2.7% while in the year 2009 the GDP rate was (-) 0.7% estimated which is very shocking GDP due to the effect of the financial crises year 2007-2008 and in the year 2010 estimated GDP was 4.7% which is dramatically which indicates good economic growth of the world.
There are top ten things which have great contribution in the export sectors 1st position is electrical machinery including computers the export rate is 14.8%, 2nd position mineral fuels including oil, coal, gas and refined products which has second highest rate 14.4%, 3rd position is nuclear reactors, boilers and parts rate is 14.2%, 4th place cars, trucks and buses 8.9%, 5th place is scientific and precision instruments 3.5%, 6th position is plastics 3.4%, 7th place is iron and steel rate 2.7%, 8th is organic chemical 2.6%, 9th place take pharmaceutical products 2.6%, last but not least diamonds, pearls and precious stones 1.9%. These are the main export sector for the world wild and for the integrated diversification in the export sector. This all data are as per world economy report 2011.
Export led growth
The fundamental relation between economic growth and exports has long been border and central of substantial discussion and debate among the economists, public sectors and trade professionals. On the bases of theoretical approach, there are four probable results (Chen 2007). First result is that export growth is measured to be the main causal of an economic growth in production and employment. It is called Export-led Growth (ELG) hypothesis. ELG growth is categorised in one direction consideration from export to Gross Domestic product. The second result is Growth driven Export hypothesis assumes that an increase in GDP usually direct to representing rise in exports (Bhagwati 1988). There is one direction relationship from output to export for Growth Driven Export. Third and fourth outcomes also very important can’t ignorable which two-way direction relationship and neutral relationships between economic growth and exports (Grossman & Helpman 1991).
In the simple words export lead growth is an economic development strategy which is used by developing country to another country to get comparative advantage. Export and foreign trade play a great role to rise country’s economic growth and development. ELG model or strategy or hypothesis is mainly used for the counties like developing countries and developed countries to generate benefits on each other. According to (Jung & Marshall 1985) export led growth is enhanced output, employment and consumption which directs to rise in the demand for a country’s output.
There is positive bonding between the exports and economic growth it’s gained from the foreign markets. In other word can say that “export is an engine of growth”. According to (Awokuse 2008) , export can grow three ways; first, export development can be a medium for output growth directly as a part of total output. There is demand of domestic products in the foreign market which can reason for economic growth in output through enhancement in the income and employment in the sector of export. Second, export growth can also influence via different ways like large number of utilization ability, distribution of efficient resource, economies of scale development and inspiration of technological perfection because of overseas (foreign markets) competition (Helpman & Krugman 1985). With the help of the economies of scale companies or firms or organisations can take advantage on non-export sector which is externally but internally it helpful to whole economy growth. Third, diversification of exports provides foreign exchange which is essential for output growth (Esfahani 1991). Following researchers have (Feder 1982), (Ram 1985), (Tyler 1981), (Ukpolo 1994), and (Bodman 1996) the same opinion on the export and economic growth relationship.
The models of (EDWARDS 1991) propound integrating positive effects from trade to enlargement are correlated to an significantly near originated by (Lewis 1955) who argue that developing countries have more incorporated technological advantage than rest of the world which does not integrated. There are three main groups which highly interested on the export performance; first is public – policy – makers, second managers and third is researcher (Sousa et al. 2008) (Katsikeas, Leonidou & Morgan 2000) . Public-policy-makers analyse that exporting is approach to collect foreign exchange reserves, rising employment levels, better productivity and in that way increasing wealth of the country (Czinkota 1994). Managers, it is essential because it boosts corporate development and make sure that firm should survive for long term (Samiee & Walters 1990) (Terpstra & Sarathy 2000). Research has also important role they identifies exporting a challenging and promising theories in international marketing (Zou & Stan 1998).
There are only two aspect of the export led growth the first is that export led growth can generate profit so that country can balance their finances as well as reduce the long term debts and develop material for the export. The second aspect is that export led growth which is much more debatable issue which increase the export growth which helpful to increase in the GDP of the country. According to (Thirlwal 2000, p. 6) economics theories indicates that two types of benefits from trade liberalization which has subsistence advantage. The two benefits are static gains and second dynamic gains. Static gains can be achieved by the resources reorganisation from lease productive sector to higher sector, directing to specialization. The second dynamic gains involve with international trade, enhancement of investment and quick productivity development based on the economics of scale, leaning by doing effects and the acquiring knowledge regarding overseas, specially throughout foreign direct investment.
According to Palley the most of East Asian countries had a number of negative effects due to importance on export lead growth. 1st it prohibited the progress of the domestic market growth. 2nd it indicates that developing countries are race to the bottom because of the regulatory competition among themselves. 3rd it creates conflicts or problems between the developing countries and developed countries. 4th there is affiliation between exports led growth and financial volatility by developing overinvestment booms. 5th because of the importance take placed on global goods and commodity markets, this model has infuriated the long- trend decline in developing countries trade. Last but not least the most import, export led growth has resisted the reliance of developing countries on the developed world, consequently becoming helpless and decline the latter’s market. Palley also argue that export led growth which is used by the East Asian countries form last decades but it’s not any longer best strategy (Palley 2002).
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