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What would happen if all developing countries expanded their manufactured exports?

Listed author(s):
  • Martin, Will

Despite the achievements of the export-oriented economies of East Asia, many policymakers doubt that a development path led by manufactured exports is feasible for all developing countries. The author examines what happens if all developing countries, rather than merely a few, expand manufactured exports. He considers two driving forces for export expansion: the liberalization of trade barriers, and productivity growth in the production of manufactured exports. With only trade liberalization, the static welfare gains are small (with the standard Armington specification used in the analysis). Even the export growth rates are far too small to replicate the essential East Asian experience. And when all developing countries participate in static trade liberalization, the small welfare gains diminish slightly. Under the more realistic assumption of dynamic export growth driven by productivity gains for manufactured exports, the welfare effects are much greater and the efforts of developing countries are mutually reinforcing. Because of strong South-South trade links, and developing countries'dependence on manufactured imports, developing countries buy more manufactured goods from each other. The author accepts the view of export pessimists that a country expanding its manufactured exports will receive depressed prices for those exports. But his results differ because he uses a general equilibrium framework with intra-industry trade rather than a partial equilibrium model of the export market. The general equilibrium model captures the fact that developingcountries still import most manufactured goods, often from each other. They will suffer, but they will also benefit, from declining prices. So they are better off if they all expand those exports.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1110.

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Date of creation: 31 Mar 1993
Handle: RePEc:wbk:wbrwps:1110
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  1. Faini, Riccardo & Clavijo, Fernando & Senhadji-Semlali, Abdel, 1992. "The fallacy of composition argument : Is it relevant for LDCs' manufactures exports?," European Economic Review, Elsevier, vol. 36(4), pages 865-882, May.
  2. Drusilla K. Brown & Robert M. Stern, 1989. "U.S.-Canada Bilateral Tariff Elimination: The Role of Product Differentiation and Market Structure," NBER Chapters,in: Trade Policies for International Competitiveness, pages 217-254 National Bureau of Economic Research, Inc.
  3. Whalley, John, 1984. "The North-South Debate and the Terms of Trade: An Applied General Equilibrium Approach," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 224-234, May.
  4. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  5. Havrylyshyn, Oli & Wolf, Martin, 1983. "Recent trends in trade among developing countries," European Economic Review, Elsevier, vol. 21(3), pages 333-362, May.
  6. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
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