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Developing Country Exports of Manufactures: Moving Up the Ladder to Escape the Fallacy of Composition?

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  • Arslan Razmi

    () (University of Massachusetts Amherst)

  • Robert Blecker

    (American University)

Abstract

The possible existence of a "fallacy of composition" in the simultaneous pursuit of export-led growth by developing countries has received relatively little attention in economic literature. This lack of attention becomes even more apparent in the domain of empirical studies of manufactured exports. This essay seeks to fill this gap. It develops a data set consisting of 10 industrial and 18 developing countries. Carefully designed relative price indices are constructed to capture price and quantity determinants of industrialized country demand for developing country exports. Export equations are then estimated for individual countries. The estimated coe±cients suggest that most developing countries that report significant price effects compete with other developing country exporters, and not with manufacturers in the industrial countries. The panel estimates provide further support in addition to indicating that differences in the nature of competition among developing countries and between developing and industrial countries underline the need to take into account these nuances of international competition. The overall results suggest major policy concerns for developing countries as they simultaneously attempt to export their way to growth through price- and wage-based competition. JEL Categories: F02, F14, F19

Suggested Citation

  • Arslan Razmi & Robert Blecker, 2005. "Developing Country Exports of Manufactures: Moving Up the Ladder to Escape the Fallacy of Composition?," UMASS Amherst Economics Working Papers 2005-02, University of Massachusetts Amherst, Department of Economics, revised May 2006.
  • Handle: RePEc:ums:papers:2005-02
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    References listed on IDEAS

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    Cited by:

    1. William MILBERG & Deborah WINKLER, 2011. "Economic and social upgrading in global production networks: Problems of theory and measurement," International Labour Review, International Labour Organization, vol. 150(3-4), pages 341-365, December.
    2. Robert A. Blecker & Arslan Razmi, 2010. "Export-led Growth, Real Exchange Rates and the Fallacy of Composition," Chapters,in: Handbook of Alternative Theories of Economic Growth, chapter 19 Edward Elgar Publishing.
    3. Razmi, Arslan, 2015. "Growth and Distribution in Low Income Economies: Modifying Post Keynesian Analysis in Light of Theory and History," UMASS Amherst Economics Working Papers 2015-16, University of Massachusetts Amherst, Department of Economics.
    4. Khan, Haider, 2013. "Bangladesh: Towards a Non-partisan Search for a Pro-people National Political Economic Strategy during Crisis," MPRA Paper 49518, University Library of Munich, Germany.
    5. Khan, Haider A., 2011. "Lessons from Korean development experience," MPRA Paper 39387, University Library of Munich, Germany.
    6. Khan, Haider, 2013. "Industrialization and Development Strategies in the 21st Century: Towards Sustainable Innovation Systems," MPRA Paper 50168, University Library of Munich, Germany.
    7. Sanika Sulochani Ramanayake & Keun Lee, 2016. "Differential impacts of currency undervaluation on growth and exports in natural resource vs. manufacturing exporting countries," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2016-023, Indira Gandhi Institute of Development Research, Mumbai, India.
    8. ., 2012. "East Asian Models of Development," Chapters,in: Trade and Industrial Development in East Asia, chapter 1 Edward Elgar Publishing.
    9. ., 2012. "Is East Asia a “Natural Trade Bloc”? The Trade Complementarity Index, the Intensity Index, and the Bias Index," Chapters,in: Trade and Industrial Development in East Asia, chapter 8 Edward Elgar Publishing.
    10. ., 2012. "Catching up or Falling Behind Hypothesis I: Trade Competitiveness between the Leader and Followers on All Manufactured Exports," Chapters,in: Trade and Industrial Development in East Asia, chapter 2 Edward Elgar Publishing.
    11. Porcile, Gabriel & de Souza, Alexandre Gomes & Viana, Ricardo, 2011. "External debt sustainability and policy rules in a small globalized economy," Structural Change and Economic Dynamics, Elsevier, vol. 22(3), pages 269-276, September.
    12. Tronzano, Marco, 2010. "Reassessing the Dynamic Links between Trade and Growth: New Empirical Evidence from India - Un riesame delle relazioni tra commercio estero e crescita economica:nuova evidenza empirica per l’India," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 63(2), pages 217-244.
    13. Saygılı, Hülya & Saygılı, Mesut, 2011. "Structural changes in exports of an emerging economy: Case of Turkey," Structural Change and Economic Dynamics, Elsevier, vol. 22(4), pages 342-360.
    14. Rodrigo Zeidan & Marcelo Resende, 2009. "Measuring Market Conduct in the Brazilian Cement Industry: A Dynamic Econometric Investigation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(3), pages 231-244, May.
    15. William Milberg, Rudiger von Arnim, 2007. "WP 2006-3 U.S. Offshoring: Implications for Economic Growth and Income Distribution," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2006-3, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    16. Razmi, Arslan, 2007. "Pursuing manufacturing-based export-led growth: Are developing countries increasingly crowding each other out?," Structural Change and Economic Dynamics, Elsevier, vol. 18(4), pages 460-482, December.
    17. Bruno Carballa Smichowski & Cédric Durand & Steven Knauss, 2016. "Uneven development patterns in global value chains," CEPN Working Papers hal-01368948, HAL.
    18. Khan, Haider A, 2010. "Development Strategies: Lessons from the Experiences of South Korea, Malaysia, Thailand and Vietnam," WIDER Working Paper Series 010, World Institute for Development Economic Research (UNU-WIDER).
    19. Marconi, Nelson & Reis, Cristina Fróes de Borja & Araújo, Eliane Cristina de, 2016. "Manufacturing and economic development: The actuality of Kaldor's first and second laws," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 75-89.
    20. Giorgia Giovannetti & Marco Sanfilippo, 2009. "Do Chinese Exports Crowd-out African Goods? An Econometric Analysis by Country and Sector," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 21(4), pages 506-530, September.
    21. William Milberg, 2007. "WP 2007-9 Shifting Sources and Uses of Profits: Sustaining U.S. Financialization with Global Value Chains," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2007-9, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.

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    Keywords

    Fallacy of composition; export-led growth; adding-up constraints; external demand; manufactured exports; intra-developing country competition; Bewley transformation; wage suppres- sion.;

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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