Build for exports: it’s even fine if you export nothing.
Why the policies that create export booms pay off—even when no boom arrives.
Fernand Léger’s The City 1
Build something but be ok if you don’t achieve much might sound pretty uninspiring but bear with us. Export-led growth is really the holy grail of development economics. The East Asian Tigers, post-Communist Eastern Europe, and latterly China, inter alia have all transformed their economies and societies by making and selling things to the world. Every low- and middle- income country (LMIC) wants to join that list.
Here is the good news: according to Jonathan Mazumdar of Growth Teams, the transformation of an export orientated sector happens much more commonly than you might think. That’s the first lesson from Growth Teams’ recently launched Export Boom Atlas.
But the second lesson is even more encouraging; aiming for export-led growth is actually a free lunch. The basket of policy prescriptions that led to these export booms are good in themselves, irrespective of their export promoting power. This isn’t the case of the means justifying the ends; the means will help exporters and domestic orientated firms alike. Aim for an export boom. If such a boom strikes, amazing. But even if it doesn’t, you still win.
Great Expectations
The Export Boom Atlas contains 82 case studies, from across LMICs, of a sector that has shown transformational growth since 1995. The breadth of examples is wide. These are stories of Honduran electronics and Cambodian bicycles. And it is quite refreshing to consider who is missing from the atlas; no Japan, no South Korea, no Taiwan, or even China.
The depth of research done by Growth Teams is impressive. More than just a catalogue of what boomed where, they provide a full case study of each example including what the policy lessons were. Putting the various lessons together gives you a list of pretty sensible ideas. But more than that, implementing the majority of these sensible ideas is no wasted effort if an anchor investor never arrives or global demand for your product doesn’t surge. The policies and reforms will help regardless.
A Tale of Two Economies
The export economy is not separate from the domestic economy. Well-functioning ports facilitate smoother exports with less cost to exporters. Obviously enough they serve a similar function for goods coming into the country. The road or railway that was built to the port to ship those avocadoes out is just as useful for transporting imported inputs to domestic manufacturers. Streamlining permits through digitization of an application process will help whether or not the permit is for an exporter or someone selling to the local market. Technical colleges that produced skilled graduates hoping to get a job with the high-profile firm that exports car parts will also produce skilled graduates that work at the juice factory that supplies corner stores. What is good for the goose is quite likely excellent for the gander.
The Export Boom Atlas even shows us this concept in the export data as well. Two-thirds of the booms—fully 54 of 82 cases—occurred in countries that had already experienced a boom in a different sector. It is of course possible that the Vietnamese government laid out meticulous, independent plans for their fish fillets, tires, office machinery parts, shoes, radio and TV transmission devices, diamonds, car parts, iron, copper, and service industries that all gloriously boomed one after another. But it is much more likely that Đổi Mới reforms affected all these industries and many more. The first boom might be the hardest. But others seem likely to follow.
Hard Times
But budding industrial policy nationalists beware. The optimistic framing of ‘hey look, everything helps!’ is not an excuse to immediately get the cheque book out and start drawing up semi-conductor factory plans. Rather, it’s a call for restraint. LMICs just don’t have enough money. And this won’t change until after (multiple) export booms, and probably a few busts, have come and gone. Therefore, policymakers must focus on the policies that will have the widest applicability. Couching the reform in the language of export booms or export-led development may help rally the requisite political support, but the key part is the doing, rather than the exporting. And if a tax break or incentive is needed to land a particular whale investor, make sure to prepare the sticks as well as the carrots. South Korea’s industrial policy is the canonical example of this sort of ‘export discipline’. Access to credit and tariff protection was conditional on measurable performance (notably export performance) with the state retaining the option to withdraw support from non-performing firms. Just lavishing support onto your favourite industrial sector or demarking an Export Processing Zones does not an Export Boom make.
Creating an economy that has a lot of exports is undoubtedly a good thing for the government of a LMIC to aspire to. And the higher value those exports the better. The Export Boom Atlas shows us that this happens more often, in more places, and in more sectors than might first have seemed likely. Governments, policymakers, development economists and basically anyone who wishes to see the populations of more countries permanently move out of poverty should continue to aim for more, and more valuable, exports. They should do so even more once they realise something surprising: it doesn’t even matter if those countries end up exporting anything at all.
Painted by Léger in 1919. Captures infrastructure, labor, and circulation as a holistic economic system. Public domain, via Wikimedia Commons.