Export-led Growth - Importance

Importance

Export-led growth is important for mainly two reasons. The first is that export-led growth can create profit, allowing a country to balance their finances, as well as surpass their debts as long as the facilities and materials for the export exist. The second, much more debatable reason is that increased export growth can trigger greater productivity, thus creating more exports in an upward spiral cycle.

The importance of this concept can be shown in the model below from J.S.L McCombie and A.P. Thirwall's Economic Growth and the Balance-of-Payments Constraint.

y_B is the balance of payments constraint, meaning the relationship between expenditures and profits

y_A is the actual growth capacity of a country, which can never be more than the current capacity

y_C is the current capacity of growth, or how well the country is producing at that moment

(i) y_B=y_A=y_C: balance-of-payments equilibrium and full employments (ii) y_B=y_AC: balance-of-payments equilibrium and growing unemployment (iii)y_BA=y_C: increasing balance-of-payments deficit and full employment (iv) y_BAC: increasing balance-of-payments deficit and growing unemployment (v) y_B>y_A=y_C: increasing balance-of-payments surplus and full employment (vi) y_B>y_AC: increasing balance-of-payments surplus and growing unemployment (McCombie 423)

Countries with unemployment and balance-of-payments problems look to export-led growth because of the possibility of moving to either situation (i) or situation (v).