What would happen if all developing countries expanded their manufactured exports?
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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National Bureau of Economic Research, Inc.
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