Tuesday, August 30, 2011

Comment on "So-called export led growth", by Jie Yang, IMF WP/08/220

Yang has a different definition of “export led ” than one has always used (which one always thought was the standard one). Our definition is in terms of policy bias ( tax-subsidy, exchange rate) towards exports as against a tax-subsidy-exchange regime that is neutral between imports and exports.  The question is whether government deliberately attempts to promote exports (through fair and foul means) or has a neutral policy regime!   The second stage of this analysis is to see which of the export oriented regimes were successful in raising export growth and GDP growth.  Those that are successful would be termed as following an export led growth strategy, regardless of what happens to the exchange rate!  In fact a depreciation of the exchange rate may be a precursor to or part and parcel of a biased policy regime promoting exports.  In fact the time pattern would be important. For instance successful high growth countries may gradually move from export bias to a neutral policy regime, with depreciation in the former period and appreciation thereafter, where the latter is an outcome of the success of the earlier policy!
Productivity increases will result in the Balassa-Samuelson effect (tradable productivity growth higher -> appreciation) and inverse Balassa-Samuelson effect (non-tradable prdoctivity growth higher -> depreciation) depending on which sector has faster productivity change.  An interesting emperical observation in the paper is that about half the high growth economies (as per Yang's definition) had an appreciation while a smaller number had a depreciation.  This aspect needs to be investigated further however, by relating it to the policy regime they had (in terms of export bias) and the time pattern of exchange rate changes.

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