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Export-Led Growth Theory - Essay Example

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Export-Led Growth Theory Name: Institution: Export-Led Growth Theory Export-led growth also referred to as export-oriented industrialization or export substitution industrialization is essentially an economic and trade policy aimed at speeding up a country’s process of industrialization…
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Download file to see previous pages However, this is not always the case for most domestic markets since governments may seek to protect blossoming industries to ensure their growth and capacity to exploit their potential comparative advantage (Liebler & Ward 1992, p. 339). Notably, export-led growth is prevalent in a majority of developing country, but the theory does not always guarantee success in the long term. This paper will examine the successfulness of the export-led growth model, taking into consideration a predominantly export-oriented country such as China to demonstrate how export-led orientation is not always effective in ensuring growth. In the adoption of export-led economic systems, governments often have to institute a number of measures such as tariff reduction, establishment of a floating exchange rate, especially through the devaluation of the national currency to enhance exports and government assistance for exportation industries and sectors (Liebler & Ward 1992, p. 338). The purpose of export-led strategy is to discover a niche market in the global economy for a country’s exports. Export-led growth has long been touted as a way of enhancing economic growth and maturity. Nations such as South Korea, Taiwan and China had implemented successful export-led growth strategies. However, global economic recessions such as the one witnessed between 2007 and 2010 have cast doubts on the success of export-led growth because of its emphasis on the specialised, internationally based economy, which is susceptible to global changes in demand trends. According to Yang (2008, p. 3) the term export-led growth refers to the successful growth episodes characterised by growth in a country’s export. Yang (2008, p. 3), however, poises that if export-led growth was the real justification for episodes of high growth in GDP and exports, then countries that adopted the system should have experienced appreciation in real exchange rates. This incident is primarily as a result on influx in foreign exchange as a consequence of the booming exports. However, this is not the case since only about half of the export-led growth episodes are characterised by exchange rate appreciation. In most instances, export-led growth is unsuccessful since it results in the depreciation of countries’ exchange rates; hence the conclusion that the high export growth is not ideally safe growth for a country. In essence, the export-led growth theory is not the overriding force for growth episodes categorized as high export growth since the non-tradable sector also plays a critical role in eliciting high economic, as well as export growth. China continues to experience massive structural imbalance issues as a consequence of adopting an export-led economic strategy in earlier years (Yang 2008, p. 5). Although the country boosts of high rates of economic growth, its imbalance problems continue to wreck havoc to the viability of its economic stance on the long term. The imbalance problems are deeply rooted in the country’s double transition, and will only ease when the nation completes its final transition in the next two decades, which is quite a long period. Meanwhile, the imbalances caused by the implementation of an export-led economy may result in severe political and social unrest, which may impede China’s growth trajectory. On the other hand, export-led growth is not successful since it subjects a country’s economy to undue exposure to the international world. By definition, an ...Download file to see next pagesRead More
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