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February 2010

The Past and Future of Export-led Growth

Ihssane Loudiyi's picture

by Shahid Yusuf

The history of development since 1950 is remarkable overall but it offers only a few outstanding success stories. These are based on the experience of a small handful of European and East Asian economies among which Germany, Finland, Japan, Korea, China, Malaysia, Thailand, Taiwan (China) and Singapore are the notable ‘high achievers’. Each sustained two or more decades of sustained rapid growth between 1955 and 1997. From among them, only China has continued forging ahead at near double digit rates since 2000. All the others have slowed.

An analysis of this unique body of experience yields five stylized facts which together underpin a particular model of development. The questions being asked insistently following the financial crisis of 2008-09, are: whether the export-led growth model can continue to shape the strategies pursued by the elite group of high achievers and also of late starters aspiring to emulate the performance of the East Asian economies? Or, whether changing global circumstances in the early 21st Century have rendered the model obsolete for most if not all economies and demand a fresh approach differentiated according to specific country circumstances?

The New Normal

Raj Nallari's picture

The Western world is likely to have a low output performance in the next 2-3 years because the financial systems in US and European countries has broken down, while the fiscal burden and public debt arising from the economic and financial crisis is quickly mounting, and these would contribute to credit restraint and private sector being crowded out. Very little has changed in terms of regulating the US and European financial system.

How to Prevent Future Credit Bubbles?

Raj Nallari's picture

Several institutions, such as the US Federal Reserve Bank, the Bank of England, the Bank for International Settlements, and the IMF among others as well as private consultancy firms (e.g. McKinsey) have opined on the above question. Here is what we know from their writings. There is now a broad consensus that advanced country monetary policy had focused almost exclusively on inflation-targeting or in the case of the US, a very narrow definition of price stability, and had neglected the speculative bubbles which were jeopardizing the financial stability.