The
current deteriorating trade balance in developing countries raises a
critical question: are exports still reliable for growth? It is a fact that
many developing countries overstate the importance of exports; they put the
cart before the horse. The correct view on exports, however, is to see that
they are just the means, not the goal.
Indeed, it would be naïve to ignore the experiences over the last two
decades, during which only a few countries’ economies have grown quickly
without experiencing an increase in the share of domestic output that is
exported. China is a good example. Between 1991 and 2011, its per capita
gross domestic product (GDP) grew by 9.53 percent. At the same time, its
export to GDP ratio (export/GDP) jumped from 16.1 percent in 1991 to 31.4
percent in 2011.
From this kind of evidence we are tempted to conclude that exports
generally lead to or stimulate growth. Yet, this would be erroneous logic.
The other side of the coin reveals a mirror image. During the same period,
only a few countries that experienced a large rise in export/GDP achieved
higher than 2 percent per capita GDP growth — taking 2 percent as the
benchmark of modest success.
Brazil’s export/GDP jumped 45 percent over the past two decades, while its
per capita GDP grew slowly at 1.75 percent. Some even suffered negative
growth, like Gabon where a 40.2 percent increment in export/GDP was
canceled out by -0.15 percent per capita growth. Here we have provided
justification to support the premise: Although countries that grow fast
tend to experience rising export/GDP, the reverse is not generally true.
Another misconception about exports may be due to the so-called Bretton
Woods’ institutional reports. It has become commonplace in recent economic
reports to claim that exports are a source of learning and positive
technological externality for the home country that allow domestic
producers to learn from the more advanced global markets.
But, what does the evidence show? Many studies find that exporting firms
are indeed technologically more dynamic, tend to have larger production
capacities that better utilize economy of scale, employ a mix of
better-skilled workers, and generally outperform non-exporting firms. In
most cases, export firms have a comparative advantage (greater efficiency)
in their production processes and they believe that this advantage enables
them to profit in offshore markets. This suggests that firms carry out
self-selections into exporting activities, i.e. efficient producers are
more likely to enter export markets.
A study by Aw, Chang and Roberts (1998) in Taiwan and South Korea found
little evidence that learning from exports had occurred in either country.
Specifically, there was no evidence that firms with continuous export
experience recorded greater productivity than those firms that never exported.
Thus, in general, causality goes from productivity to exports, not the
other way around.
What really needs to be emphasized is importation. Don’t get me wrong; I’m
not saying exportation is meaningless. However, imports benefit growth in
at least two ways: importing ideas and importing investment and
intermediate goods.
The new growth theory stresses the importance of human capital in the
growth process. In another expression, human capital is often considered as
the soul of growth, an idea. From a supply point of view, ideas on
organizing the process of production, manufacturing new products, and
identifying a latent demand for a commodity are central to economic growth.
And this is the beauty of imports; that a home country can “borrow” ideas
from others. The wheel does not have to be reinvented in every country.
South Korea and Taiwan have been very successful at importing ideas despite
wide-ranging trade restrictions throughout the 1960s and 1970s.
The second powerful element of imports is importing investment, goods and
intermediate goods. For most successful developing countries, raising the
long-term growth rate requires an increase in the investment rate.
However, these countries lack a comparative advantage in producing capital
goods. This is also true for intermediate goods, even though the
relationship with growth is less direct.
In any modern economy, production of manufactured goods relies on a wide
range of specialized inputs, many of which exhibit increasing returns to
scale. Again, developing countries most likely cannot rely on a domestic
supply of specialized intermediate inputs. Hence, for both investment and
intermediate goods, imports are the second-best way to do so, not to
mention with minimal import restrictions.
But, this is important. Successful countries like South Korea and Taiwan
benefited from imports in quite a short time frame and transformed what
they had gained into larger capacity in domestic industries.
An
interesting question then arises: Has Indonesian industries benefited from
imports in the same way?
Since the first quarter in 2012, Indonesia’s current account has been in
deficit. Besides an annoying loss from oil imports, the shrinking global
economy seems to have been made the scapegoat.
If the two elements of imports mentioned above had sufficiently
strengthened our domestic industries, we could still expect stable growth
with a sustainable current account surplus, despite the worldwide slowdown,
and solid domestic demand as we now have. That’s the only way for imports
to be good. ●
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