Exports and Economic Growth: A Survey

FOREIGN TRADE and payments have assumed a central role in the development plans of many underdeveloped countries. For most of these countries, exports represent an important share of total output and hence trends in foreign sales are critical in fostering over-all growth. For some underdeveloped countries, export trade is such an important factor that an estimate of the foreign exchange earnings represents a first step in the formulation of development plans. In most development planning the importance of exports to domestic growth has been approached in terms of the acquisition of foreign exchange for the importation of goods and services. In other words, export growth is seen as a determinant of import capacity which, in turn, is a determinant of the level of domestic economic activity. Although there can be no question that this is an important function of exports, it is misleading to assess the contribution of the export sector solely in terms of foreign exchange earnings. Perhaps the tendency to evaluate exports only in terms of representing a source of foreign exchange partially explains why many underdeveloped countries, while stressing the immediate importance of exports, also hope to reduce their relative dependence on foreign markets as economic development proceeds at a more rapid pace. Thus it is overlooked that the export sector assumes a broader and more useful role than that reflected in terms of foreign exchange earnings. A number of models exist which show, or can be modified to show, the possible relationships between a country's exports and the growth of the domestic economy. Each of these models assigns a specific role to the export sector in the process of economic growth.