Export-led growth [ELG] or export promotion [EP] has been advocated as a forceful strategy for accelerating the growth rate of an economy.
It has been vehemently advocated by the World Bank, the IMF and others who believe in the virtues of market mechanism. Examples are cited of successful export-led growth, while there is hardly an example of achieving a high rate of growth through IMS.
Conceptually, this strategy stands diametrically opposite to that of IMS. Factually, however, even the latter needs the support of a strong programme of EP. The strategy of ELG, by its very nature, is market-oriented.
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It relies upon exploiting dynamic (that is, changing) comparative cost advantage of a country. It aims at increasing its export earnings so that it can pay for its growing import needs without running into balance of payments difficulties and without adding to its external indebtedness.
Its policy tools are designed to cut production costs and fill demand gaps. Quantitative controls and restrictions are assigned a minimal role in this strategy. Instead, emphasis is laid on removing all conceivable obstacles in the way of efficient working of the economy.
Guided by the criteria of comparative advantage, this strategy aims at making an optimum use of the productive resources of an economy.
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It provides employment to hitherto unemployed and under-employed productive resources. To that extent, therefore, it avoids unnecessary capital intensity, and relies upon what is termed “socially appropriate technology”.
In other words, it aims at providing employment to the growing labour force by adopting relatively less capital-intensive techniques.
A by-product of an appropriate technology is a lower level of unemployment, a direct reduction in poverty and an addition to social welfare.
Strategy of export-led growth can succeed only by acquiring a certain degree of competitiveness in export markets.
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This, in turn, necessitates measures for improving economic efficiency of the country covering, for example, infrastructure, attitude towards work, concern for quality and cost of products, social and legal institutions, financial system, adequate investment in research and development, improved quality of governance, improved budgetary policies of the government, and so on.
It is not possible to compile a detailed list of the measures that should comprise an export-led growth strategy of a country.
The choice of these measures depends upon the relevant circumstances faced by it. These measures also need an ongoing monitoring for necessary updating.
If need be, even direct multilateral and bilateral agreements with other countries can form a part of this strategy. India, for example, entered into several “rupee- trade” and “barter-trade” agreements with erstwhile communist countries of Eastern Europe.
Strategy of export-led growth, by its very nature, is intermeshed with an all-pervading growth effort. It is designed to operate through improving the efficiency of the economy and making its exports competitive. It identifies existing areas of comparative advantage and concentrates upon thrust areas of export.
Theoretically, very strong arguments can be advanced in favour of both import substitution and export-led growth. In addition, measures for EP can also be adverted for removing balance of payments difficulties.
It should, however, be emphasised that neither of the two approaches can be applied in its pure form. IMS needs the support of export promotion. And, ELG does not mean that it is wrong to be self-sufficient in certain essential items relating to defence, health, food and the like.
In addition, in an atmosphere of increasing globalisation and rapid growth of domestic economies, factors like capital movement and regional economic integration have acquired a crucial relevance of their own.
They, in turn, are influencing the choice of a comprehensive policy relating to international economic relations. The net result is that, to be meaningful, a country’s policy covering its external sector should incorporate relevant components of both import substitution and export promotion.
Export-led growth is not just “openness” of an economy. Openness must be supported by economic health of the country and stability of its economic policies.
It is difficult to find examples of developing countries which could record rapid growth without a rapid increase in their exports.
Frequently mentioned successful examples of export-led growth include Hong Kong, Singapore. Republic of Korea and Taiwan and some other East Asian countries.
These countries have succeeded in near total elimination of poverty. In contrast, countries like India remained somewhat isolated and, so long as they did so, their per capita incomes could grow only at a miserable rate of less than 1.5% p.a.