ECON 330 UM A Countrys Dominant Pattern of Transforming Question

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Short response: Ocampo et al (2009)
Q1
100 Points
Using the text box below, answer the following question (1.5-3 paragraphs). Make sure
that your answer is brief, clear, and to the point. Avoid discussing aspects of the
readings that are not directly related to the questions.
Consider the authors’ classification of merchandise exports according to their
technological and natural resource content — namely, primary products, resourcebased manufactures, low-technology manufactures, medium-technology manufactures,
and high-technology manufactures.
According to the authors’ findings in the section titled “Trade Specialization Patterns and
Economic Performance” (p. 70, passim.), what is the relationship between a region’s
dominant pattern of transformation of its export structure (i.e. in the direction of one of
the categories above) and per capita GDP growth?
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
CHAPTER 4
Open Economies and Patterns of Trade
(with mar iá ngel a pa r ra)
T
hi s c h a pter takes up the relationship between foreign trade and growth
in developing countries in the latter part of the twentieth century. Regional
diversity was again the rule, with changing patterns of trade accompanying
structural transformation. Fast-growing regions generally recorded increases
in shares of manufactured exports with mid- and high-technological content,
the most impressive being the Tigers and, in its speed of transformation, China.
Recently in some countries, economic growth has been associated with specialization in dynamic ser vices such as information and communications technologies, with India standing out in this area. In the slow-growing regions on
the other hand, trade diversification and technological upgrading were far less
evident. The slow growers were also subject to terms of trade and other external
shocks.
For orthodox economists, openness to trade is an important explanatory
factor for economic growth. Higher growth rates are supposed to be spurred by
“gains from trade” attributable to access to lower-cost foreign products and
more efficient domestic resource allocation on the supply side. True to their mercantilist heritage, structuralists point out that exports can stimulate domestic
production through the multiplier. Also, as discussed in chapter 1, access to
foreign exchange from exports can be used to i mport necessary products to
satisfy demand. Imported foreign technology can lead to better and more productive investment that taps potential increasing returns to scale.
In the discussion to follow, we first take up the changes in the pattern of
trade in goods and ser vices, and the evolution of the terms of trade of commodities. We then explore the links between specialization patterns and economic performance and conclude with some policy implications, which are
developed further in the following chapters.
59
Changing Patterns of Trade
Over the long term, all countries included in Maddison’s (2001) data set had
positive growth rates in the value of merchandise exports. As a share of GDP,
exports generally have increased since the nineteenth century (figure 4.1). This
process has been, of course, far from monotonic, with a general reversal during
the interwar period of the twentieth century and specific regional reversals in
other periods.
The usual long-run conclusion drawn is that there are positive effects of
trade expansion on overall labor productivity. Over given periods, however, the
relationship may not be present. For example, in the 1990s greater trade openness
was not associated with faster economy-wide productivity in most countries. As
emphasized in chapter 1, not just openness to trade but a nation’s “insertion” into
the global economic system (aid and debt relationships, patterns of trade, commodity price shifts, and access to technology) strongly conditions its prospects.
Since the 1960s, growth in trade has been accompanied by a gradual change
in the specialization patterns of developing countries away from primary commodities. This process accelerated after the 1980s but was very uneven across
the developing world (Lall 2001, chap. 4; Akyüz 2003, chap. 1; Ocampo and Vos
2008, chap. 3). Table 4.1 summarizes the patterns of transformation of the export structure in the different regions defined in the previous chapter. We use
the late Sanjaya Lall’s well-known classification of the technological and natural resource content of merchandise exports.
F I G U R E 4 .1
Merchandise exports as percent of GDP by regions (1870–1998)
40.0
35.0
30.0
exports/GDP (%)
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
Open Economies and P a t ter ns of Trade
25.0
20.0
15.0
10.0
5.0
1870
1913
Eastern Europe
1950
Latin America
1973
Asia
1990
Africa
1998
World
Sources: Data on exports and GDP are from Maddison (2001). Regions are also defined according to
Maddison (2001).
14
20
23
23
17
3
56
15
21
6
1
0
44
25
13
Primary products
Resource-based manufactures
Low-technology manufactures
Medium-technology manufactures
High-technology manufactures
Others
Primary products
Resource-based manufactures
Low-technology manufactures
`
1986
1985–
Primary products
Resource-based manufactures
Low-technology manufactures
Medium-technology manufactures `
High-technology manufactures
Others
Period
10
11
46
18
14
1
China
5
10
17
26
40
2
Tigers
1996
1995–
7
9
40
20
23
1
4
10
14
25
46
1
2001
2000–
43
20
14
29
19
15
24
16
14
Semi- industrialized countries
19
11
42
21
6
2
7
14
27
25
27
1
1991
1990–
30
16
12
4
8
31
22
34
1
4
14
11
27
42
2
2006
2005–
66
27
4
30
21
39
6
2
1
57
20
10
5
2
5
1986
1985–
67
24
8
20
19
47
9
3
2
34
21
24
9
10
3
18
19
48
10
4
1
South Asia
23
19
22
13
19
4
Southeast Asia
1996
1995–
63
21
7
55
22
9
13
21
48
10
5
2
20
15
19
15
29
2
2001
2000–
Andean countries
1991
1990–
Shares of Commodities with Different Technological Content as a Percent of Total Exports
TA B LE 4. 1
51
29
6
12
32
34
15
5
1
21
18
16
19
25
1
2006
2005–
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
56
27
8
4
4
0
12
19
2
8
60
—
65
18
5
9
1
1
Primary products
Resource-based manufactures
Low-technology manufactures
Medium-technology manufactures
High-technology manufactures
Others
Primary products
Resource-based manufactures
Low-technology manufactures
Medium-technology manufactures
High-technology manufactures
Others
Primary products
Resource-based manufactures
Low-technology manufactures
Medium-technology manufactures
High-technology manufactures
Others
26
9
1
27
16
3
90
3
2
3
0
1
18
17
3
3
59
—
44
31
12
6
4
3
76
14
4
4
0
1
Other Africa
39
19
8
17
3
15
Former USSR
34
21
15
10
3
17
90
6
1
2
0
1
44
19
7
14
4
11
29
24
16
13
17
1
Central America and the Caribbean
18
3
1
55
28
2
9
1
5
49
23
5
13
2
8
25
26
18
14
16
1
25
11
5
70
21
5
4
0
0
67
23
4
3
1
1
28
10
17
28
13
5
2
0
1
Source: Authors’ calculations based on UN- COMTRADE (2008) online database. Classifications based on Lall (2001).
14
3
1
Medium-technology manufactures
High-technology manufactures
Others
2
1
6
3
1
10
12
20
31
29
7
1
7
15
26
36
14
2
55
22
8
4
1
11
51
19
6
2
1
20
72
15
6
6
1
0
68
17
8
6
1
0
74
13
6
5
1
1
Middle East and Northern Africa
50
28
12
8
1
2
Representative Africa
21
19
23
26
6
5
Central and Eastern Europe
1
0
0
77
11
4
6
1
1
41
25
5
4
1
24
7
15
20
39
16
3
3
1
11
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
62
gr o w th and p o licy in de velop ing countr ies
The rapidly growing regions in Asia had the most significant shifts in technological content—although less so in South Asia than in the other three. As
noted above, the Tiger economies led in terms of technologically advanced exports, which reached 40 percent or more of total exports since the mid-1990s.
Their medium-technology exports largely maintained their share, whereas the
low-technology and natural resource–based components (both primary goods
and resource-based manufactures) dropped off sharply.
Southeast Asia followed a si milar but slower pattern of transformation.
Reflecting its relatively richer endowment, as compared to other Asian regions,
its resource-based exports held up much more than in the Tigers and still represented close to two-fi ft hs of total exports in the mid-2000s . The region saw,
in any case, a sha rp increase in the export share of mid- and high-tech exports, which jointly increased in 1985–1986 from 7 percent of total exports of
goods to 44 percent in 2005–2006. Some of these exports, particularly those of
high technology, have a strong dependence on manufacturing assembly operations, with domestic value-added in the range of 10–20 percent of the value
of exports.
Trade patterns also shifted to a significant degree toward manufactures
and away from primary products in the South Asian countries, largely driven by
trends in India. These economies remained, however, at the lower end of the
technological content of exports, although gradually moving up and accompanied, in the case of India—though not the neighboring countries—by a boom of
“dynamic services” (see this topic later in the chapter). In 2005–2006 South Asia
still overwhelmingly specialized in exporting resource-based or low-tech commodities, which made up about 80 p ercent of its export basket of goods. This
slower transformation also included limited expansion of assembly operations in
India and Pakistan, which were more important in Sri Lanka and Bangladesh.
Even if compared to its successful regional counterparts, the export transformation of China was particularly impressive. From a structure not very different from that of Southeast Asia in the mid-1980s, it moved to one closer to
that of the Tigers two decades later. China’s exports of high-technology manufactures rose from 1 percent of the total exports in 1985–1986 to 34 percent in
2005–2006, whereas the share of mid-technology goods increased from 6 to
22 percent. Low-tech manufactures remained relatively important, however,
indeed closer to t he patterns of South Asia, whereas resource-based exports
decreased sharply. Although the assembly activities peculiar to late twentiethcentury globalization constitute an important part of its export structure, the
Chinese economy has clearly compensated for dependence on imported components with a b road industrial export dynamism, as reflected in its large
manufacturing export surplus. There has been a growing deficit in mining (including energy) products, thus generating growing linkages with the natural
resource–based economies in other regions of the developing world.1
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
Open Economies and P a t ter ns of Trade
63
The semi-industrialized countries also recorded an increase in the share of
manufacturing exports, but the speed of this transformation was slow relative
to that of all the Asian regions. This trend did not offset the region’s historical
pattern of specialization as a net importer of manufactured goods and a net
exporter of agriculture and mining. Reflecting abundant natural endowments,
46 percent of the region’s total exports were still resource-based in 2005–2006.
With some important exceptions (Mexico’s incursion into high-technology
activities with a large assembly component), the mid-tech manufactures were
relatively more successful. Some of these industries—such as automobiles and
process industries—had grown up under import substitution and made a successful transformation into export markets.
The smaller Andean economies remained poorly articulated into the global
trading system. Table 4.1 shows that around 80 percent of the region’s exports
were still made up of primary commodities or natural resource–based manufactures in the mid-2000s . In contrast, the Central America and the Caribbean economies fared better in exporting (largely assembled) manufactured
goods as well as tourist ser vices (see this topic later in this chapter). The surge
in high-technology exports in this group has a single explanation: Intel’s production of computer chips in Costa Rica, with limited domestic content. More
generally, the region remained a net importer of manufactures throughout the
entire period, indicating that assembly exports did not generate the type of
dynamic industrial linkages observed in the Asian economies undergoing
similar transformations.
Central and Eastern European exports have been dominated since the
1980s by manufactures, basically as a consequence of the rapid industrialization policies followed after World War II and based on the Soviet model and
supported by the Council for Mutual Economic Assistance (COMECOM). This
pattern of specialization implied a chronic deficit of mining and energy products, fitting the energy-intensive nature of Soviet-style technologies. As a share
of total exports, high-tech products in Central and Eastern Europe were below
that of the Tigers in the mid-1980s and also below those of China and Southeast
Asia in the mid-2000s . This finding confirms Podkaminer’s (2006) observation
that a s tructural mistake was made d uring the “planned” years in that not
enough attention was paid to specialization in high-technology sectors. As in
the semi-industrialized countries of Latin America, Turkey, and South Africa,
it was more the mid-technology sectors that led the transformation of the export structure.
Whereas the transition implied for Central and Eastern Europe the deepening of the previous industrialization process, for the former USSR it implied
a veritable “reprimarization” of its export structure. The data in table 4.1 apply
only to R ussia and Ukraine but are representative for the former USSR as a
whole. The Russian Federation has become primarily an exporter of mining,
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
64
gr o w th and p o licy in de velop ing countr ies
particularly energy-related products (oil and natural gas), with the share of
primary commodities increasing from 12 percent in 1985–1986 to 49 percent in
2005–2006—or from 31 percent to 72 percent if natural resource based manufactures are included.
An even higher and stable dependence on exports of natural resources is
typical of most of the selected Middle Eastern and North African economies.
In total, about 90 p ercent of exports in this region are either primary commodities or natural resource–based manufactures. It should be underlined that
these results can be attributed to the large share of Saudi Arabia in the region’s
total exports. The aggregation then overshadows the trade patterns for smaller
countries such a s Tunisia, Jordan, and Morocco, which now export mostly
manufacturing products and tourist ser vices.
Finally, we can look at how sub-Saharan Africa is performing in terms of
integration into the global trading system. As can be observed in table 4.1, the
two subregions exported mostly resource-based and low-tech products. The
larger medium-tech share in Other Africa is driven by Zimbabwe’s exports (as
of 2008 strongly affected by ongoing political turmoil), while the Representative Africa region records a slightly higher range of low-tech manufactures.
Trade in Ser vices
With new information and communication technologies spreading worldwide,
the transfer of some ser vice activities across countries and continents has become feasible. The Internet revolution of the 1990s played a crucial role in this
transfer. An important outcome has been the outsourcing of back-office services from developed to developing economies.
The most publicized case is that of India. An English-speaking, educated
labor force attracted many multinational corporations that transferred part of
their operations to take advantage of lower labor costs. An immediate question
is whether these ser vice activities can contribute, by themselves, to dy namic
growth in the Hirschmanian sense of establishing linkages with other domestic sectors or in the Kaldorian sense of inducing productivity change. More
directly, in what way do the calling centers outsourced by U.S. firms to Bangalore contribute to the establishment of new economic activities, besides those
resulting from the final demand by the employed labor? An industrial sector
would do that through demand for intermediate inputs, raw materials, or innovations encouraged by industrial policy. Can there be a similar developmental
strategy based upon the ser vice sector? Indeed, can the Indian IT sector advance beyond provision of call centers and back-office ser vices to production of
innovative soft ware? Anecdotal evidence suggests that on the whole, it has not
gone far in this direction.
Open Economies and P a t ter ns of Trade
65
Service sector as a share of total exports (1980–2005)
40.0
35.0
30.0
percentage
25.0
20.0
15.0
10.0
5.0
Ot
he
rA
fri
ca
Re
pr
No
&
st
M
id
dl
e
Ea
Af
ric
a
a
er
rth
er
n
st
Ea
l&
nt
ra
Ce
2005
es
en
ta
tiv
e
n
Eu
ro
Af
ri c
pe
an
be
Ca
rib
&
nt
ra
lA
m
er
ica
1980
Ce
Se
m
i-in
du
st
ria
liz
th
e
ed
co
An
un
de
tri
e
an
s
As
ia
So
ut
h
ina
Ch
ge
rs
So
ut
he
as
tA
sia
0.0
Ti
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
FIGURE 4.2
1990
Source: UNCTAD (2007).
Aside from ser vice activities associated with information and communications technologies, there has also been a b oom of other types of ser vices.
Tourism, an expanding ser vice activity worldwide, has been dynamic in many
developing countries. Again, to what extent do these ser vices serve as a source
of linkages and productivity growth? Banking, insurance, and business consulting ser vices have also boomed but have remained highly concentrated in
industrial countries.
Looking at the trends in the overall trade in ser vices is one way to begin to
address these questions. Figure 4.2 shows that ser vice exports have been modest. As a sha re of total exports of goods and ser vices, the latter fluctuate between 9 percent and 16 percent for most regions, with China as the lowest. At
the other end of the scale, South Asia, Central America and the Caribbean, and
Representative Africa had s er vice exports amounting to b etween 25 percent
and 36 percent of the total exports.
Comparing figure 4.2 with exports of ser vices by types of activities in table
4.2 shows that the Central American and Caribbean and the Representative
Africa regions (mainly Kenya in the latter) had high contributions from tourism, which develops some linkages (demand for foodstuffs and some basic
manufactures) but typically does not lead to significant technological learning.
66
gr o w th and p o licy in de velop ing countr ies
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
TAB L E 4 . 2
Breakdown of Regions’ Exports of Services
% of total exports of ser vices
Region
1980
1985
1990
1995
2000
2005
Tigers
Transportation
Travel
Other ser vices
39
25
36
34
30
37
25
36
39
33
27
40
35
22
43
36
18
46
Southeast Asiaa
Transportation
Travel
Other ser vices
16
40
44
14
43
43
14
57
29
9
49
42
17
65
18
22
44
34
Chinab
Transportation
Travel
Other ser vices
52
28
20
43
32
25
46
30
24
18
46
37
12
53
35
21
39
40
South Asiac
Transportation
Travel
Other ser vices
20
45
36
21
25
54
27
27
46
31
29
40
17
19
64
16
16
69
Semi-industrialized countries
Transportation
Travel
Other ser vices
27
43
30
32
41
27
22
47
31
22
41
37
19
43
39
20
54
26
Andean
Transportation
Travel
Other ser vices
32
39
28
39
30
31
40
31
28
36
36
28
22
50
27
25
53
21
Central America & the Caribbean
Transportation
Travel
Other ser vices
20
46
34
16
58
26
13
57
30
10
65
25
11
71
17
12
72
16
Central & Eastern Europed
Transportation
Travel
Other ser vices
51
20
29
48
21
30
38
22
40
23
35
42
23
49
29
27
38
35
Middle East & Northern Africae
Transportation
Travel
Other ser vices
25
29
45
—
—
54
—
—
53
—
—
44
—
—
—
—
43
40
(continued)
Open Economies and P a t ter ns of Trade
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
TA B L E 4 . 2
67
(continued)
% of total exports of ser vices
Region
1980
1985
1990
1995
2000
2005
Representative Africaf
Transportation
Travel
Other ser vices
28
26
46
29
36
35
—
—
37
21
58
22
26
50
25
24
55
22
Other Africag
Transportation
Travel
Other ser vices
66
10
24
50
10
39
28
8
64
24
8
68
17
9
75
14
6
80
Source: UNCTAD (2007).
a
1981 as starting year, b1982 as starting year, 2003 as end year, c2003 as end year, d1982 as start year,
2005 without Slovakia, e2004 as end year, f1981 as starting year, and 1991 instead of 1990, g2003 as
last year, Cameroon, Cote d’Ivoire and Mozambique
In some cases, when most of the goods used to cater to travelers are imported,
not even these linkages are present and tourism resembles assembly manufacturing in its low contribution to domestic value-added.
In contrast to these two regions, South Asia (basically India) recorded an
increase in the share of its ser vices other than travel and transportation. Table
4.3 adds one more piece of information: the rise of ser vice sector share in exports in South Asia is mostly attributable to expansion of “dynamic” ser vice
exports associated with information and communications technologies. Such
exports are dynamic in the sense that they generate high value-added and utilize skilled labor as compared to travel and transportation ser vices. Indian experience suggests, in particular, that specialization in ser vices with higher
value-added can help growth and income per capita. Nevertheless, an overwhelming 93 percent of India’s labor force remains unemployed or underemployed in the agricultural and urban informal sectors.
Elsewhere, the connection between exports of ser vices and economic
growth appears to be mixed. The fast-growing countries, such as the Tigers and
China, have consistently seen an expansion of exports in “other services,” mainly
banking, insurance, and business ser vices. Other ser vices have also been increasing and make up 35 percent of total ser vice exports in Central and Eastern
Europe, with business-related activities taking the dominant share. This increase in other ser vices is also true of some semi-industrialized countries—e.g.,
Brazil. However, given the low share of ser vice exports in general in these
economies, it is hard to argue that they have played an important role in their
growth processes.
68
gr o w th and p o licy in de velop ing countr ies
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
TA B L E 4 . 3
Exports of Information and Communications Services as a Percentage
of Total Service Exports
Region
Share in ser vice exports
Tigers
Southeast Asia
China
South Asiaa
Semi-industrialized countries
Andean
Central America & the Caribbeanb
Central & Eastern Europe
Middle East & Northern Africa
Representative Africa
Other Africaa
0.8
0.6
2.5
39.8
1.2
0.0
2.5
2.3
0.5
1.0
0.3
Source: UNCTAD (2007).
a
2003
b
2004
Terms of Trade
Failing to diversify exports toward products with higher domestic value-added
and technological content always carries risks of adverse terms of trade
movements that affect primary commodities but increasingly also low-tech
manufactures, which are associated with low-demand elasticities and low
wages in producing countries.2 Such adverse shocks result, in turn, in declines
in export revenues and potential foreign exchange bottlenecks. Even favorable
terms-of-trade shifts can set off Dutch disease and similar afflictions in primary goods exporters.
As discussed in chapter 2 , the economic slowdown in most developing
countries that started in the second half of the 1970s and deepened during the
lost decade of the 1980s was partially associated with falling terms of trade for
nonmanufactured products. Terms of trade for commodities fell by around 30
percent from the average of the first three-and-a-half decades following World
War II. The collapse lasted about a q uarter century. As export values plummeted, many economies went into recession or an outright growth collapse.
The slowdown was worsened by a sudden cutoff in net financial transfers to the
developing countries at the beginning of 1980s (especially in Latin America).
The downward trend in prices for primary commodities that began in the
1970s was not something new. Decades previously, in the late 1940s, two structuralist economists, Raúl Prebisch (1950) and Hans Singer (1950), put forth a
69
theory on the effects of declining terms of trade for developing economies. They
maintained that as economies around the world grow richer, the structure of
their demand changes toward manufacturing products (and now, more recently,
dynamic ser vices). The use of synthetics to replace raw materials in the production of manufactured goods will bring about a further decline in the relative demand for primary commodities. Terms of trade will thereby move unfavorably,
leading to declining net export values and adverse effects on growth.
Figure 4.3, updated from Ocampo and Parra (2003), confirms this view.
The figure presents the long-run trend of real prices for nonfuel primary commodities throughout the twentieth and early twenty-first centuries.3 Commodity
prices are compared with the manufacturing unit value index developed by the
United Nations and now regularly updated by the World Bank. Thus, the trends
describe how prices of primary commodities fared relative to manufacturing
products for the last century or so. Despite upward spikes early in the last century and in the 1920s, 1950s, and 1970s, the overall downward trend is quite
clear. For the twentieth century as a whole, raw materials recorded a decline of
more than 50 percent in their value relative to manufactures. Among different
commodities, tropical agricultural products fared the worst, while metals did
somewhat better (not shown in figure 4.3).
FIGURE 4.3
Ratio of aggregate non- oil commodity prices to manufacturing prices
(1900–2005)
170
160
150
140
130
120
110
100
90
80
70
60
Commodities/Manufactures Price Index
Sources: Grilli and Yang (1998), Ocampo and Parra (2003), and update based on the latter study.
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1930
1925
1920
1915
1910
1905
1900
aggregate commodity price index vs manufactures,
excluding oil 1945–80 = 100
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
Open Economies and P a t ter ns of Trade
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
70
gr o w th and p o licy in de velop ing countr ies
Another spike emerged in recent years, together with a boom in oil and
other prices (as in the 1970s). These price hikes were propelled in part by the
large increase in the demand for raw materials coming from the rapidly growing Chinese economy. Many low-income primary product exporters (not to
mention generously endowed Russia and the Persian Gulf countries, among
others) saw handsome gains in the terms of trade and grew at relatively decent
rates. Unfortunately, this boom came to an end in mid-2008, an event that is
likely to curtail economic expansion in much of the developing world.
The solution for ensuring long-term sustainable growth depends on developing countries’ ability to diversify their exports toward products with more
value-added and technological content. While many economies may not be
ready to enter production of high-tech manufacturing, a niche is open for them
in other industries where they can still take advantage of increasing returns to
scale and avoid risks from unfavorable terms of trade shocks or from a decline
in the world demand for primary products.
Trade Specialization Patterns and Economic Performance
The evidence of a strong association between the patterns of specialization in
international trade and economic growth is compelling. Hausmann et al. (2007)
use cross-country econometrics to a rgue that the “quality” or technological
content of exports is a ba sic determinant of growth. These authors measure
quality by the income content of exports, estimated as a weighted average of
the incomes of countries that typically export the same type of goods. Using a
different methodology, Ocampo and Parra (2007) and Ocampo and Vos (2008,
chap. 3) come to a similar conclusion.
Table 4.4 uses the latter approach to show the association. We first identify
the “dominant” pattern of a specialization—or rather, of the transformation of
the export structure—of each country in a given period and then estimate the
average per capita growth rates of countries with that specialization pattern.
Sanyaja Lall’s classification of exports by technological and natural resource
contents is again used in table 4.4.
We use two alternative methodologies to determine which specialization
pattern is dominant in a sp ecific country and time period. The first method
(table 4.4a) is that used by Ocampo and Vos (2008, chap. 3). It is based on the
change in the share of a specific export category weighted by a measure of the
“revealed comparative advantage” (RCA) of the country in that category of
goods at the end of the period (the share of the country in that category of exports in world markets relative to its overall share in world exports).4 The second method (table 4.4b) also determines the change in the share of the specific
export category multiplied by a dummy that indicates whether the country has
a “revealed comparative advantage” in that category of exports.5 In both cases,
© Ocampo, Jose Antonio; Rada, Codrina; Taylor, Lance, Jun 01, 2010, Growth and Policy in Developing Countries : A Structuralist Approach
Columbia University Press, New York, ISBN: 9780231520836
Open Economies and P a t ter ns of Trade
71
the export category with the highest value of the estimated coefficient of specialization is taken as the “dominant” one during the period.
Table 4.4 presents the averages of per capita GDP growth of each group of
countries with similar “dominant” specialization patterns. Estimates are done
by decade since the 1970s and two longer subperiods. According to data availability, we include 93 countries in the analysis for 1970–2000 and 67 for periods
ending in 2005–2006.
These exercises point to three main conclusions. The first is that growth is
closely associated with the technological and natural resource content of exports. Countries with an export pattern dominated by high-tech grow the fastest over the long run, followed by exporters of either mid-tech or low-tech
products. In contrast, exporters of natural resource–based manufactures and,
in particular, primary products consistently show the worst performance. Both
methodologies confirm this conclusion, with the second accentuating the advantage of high-tech exports.
The second main conclusion is that high-tech and low-tech manufactures
offer more stable growth patterns, while the other three categories (mid-tech
and the two natural resource–based categories) are subject to stronger cyclical
swi