Outward-Looking Development Policies

Burhanettin Noay 2010-2011

The Faculty of Economics and Administrative Sciences

What are we going to discuss today?

0.The Origin of Export-led Growth Strategy 1.Defination of Outward-Looking Development Strategies

2.Washington Consensus
3.Import-Substitution and Export-led Growth 4.Trade Reform in Selected Developing Countries 5.The Four Asian Tigers 6.How did the Four Asian Countries Achieve ?

7.And Turkey

0.The Origin of Export-led Growth Strategy The origin of export-led growth strategy is based on A. Smith and D. Ricardos thoughts.
A. Smith suggests to increase exports to least developed countries (colonial countries) needed for the development.

And D. Ricardos "Comparative Advantage Theory (CAT), the main starting point of today's export-led growth strategy

Outward-Looking Development Strategies Government support for manufacturing sectors in which a country has potential comparative advantege.

 There are some tests about the relationship between economic growth and export in economic literature.
Some of them say that export affects economic growth
The main of these studies are as follows: Tyler (1981), Kavoussi (1984), Rivera-Batiz and Romer (1991), Grossman (1991), Bahmani-Oskooee and Alse (1993), Sengupta and Espana (1994), Kwan and Kwok (1995), Doraisami (1996), Bahmani-Oskooee and Niroomand (1999).

And some economists say that there is no significant relationship

Akbar and Naqvi (2000), Ahmed et al.(2000), Panas and Vamvoukas (2002).

Some important effects on economic growth of exports can be summarized as follows:

First, export increases competitiveness. Second, productivity growth in foreign trade, as well as to obtain new technologies(technology imports) and providing the spread of technologies. Third, specialization and benefit from comparative advantages Fourth, some economies has narrow domestic market but they can get opportunities to make the economic scale of production with exporting

Fifth, by increasing foreign exchange inflow reduces pressure of foreign exchange payments. Thus allows an increase in imports of goods and services.

Properties of Outward-Looking Development

Criterion

Outward looking strategy

Inward looking strategy

Problems

Production of primary goods as bases for outward looking strategy Vulnerability due to world market developments (ToT, price shocks) Initiation of new industries

orientation according to

cost disadvantages Protectionism and inefficiency Narrow domestic markets High share of imports in inputs (no absolute foreign exchange use, but only change of imported goods) Reduction of protectionism and moving towards exportorientation

Universitt Hohenheim, Institut 490a

 After the oil crises of 1973, economies in the world went into a quest.

In August 1982, Mexican crisis

Washington Consensus
in 1985 the US Treasury Secretary, James Baker

the term was initially coined in 1989 by John Williamson to describe a set of ten specific economic policy prescriptions that he considered should constitute the "standard" reform package promoted for crisiswracked developing countries by Washington, D.C.-based institutions such as the IMF, World Bank, and the US Treasury Department

The causes of the economic crisis:

The overgrown with protectionism and excessive state intervention in the public sector

Economic crisis management:

reduce government intervention in the medium term
a growth strategy based on exports to support the market economy

 some countries tried to apply this package which is about freee market and a growth strategy based on exports

Argentina experience resulted in the crisis(1999-2002), this is not the only example
- in next slides we will see exprience of Turkey

At that time economy of Argentina was not ready yet to apply these changes

 Turkey applied without creating the necessary regulatory mechanisms and without taking adequate protective measures. As a result Turkey met two of the crisis(1994 and 2001) Turkey had in a large public sector deficits and trade deficits before the crises
for example, in 1993 foreign trade deficit increased by 72.7% to $14.1 billion Similar to the same indicators in 2000, foreign trade deficit increased by 89.9% to $26.3 billion

The Four Asian Tigers

How did the Four Asian Tigers achieve?

 The Four Asian Tigers pursued an export-driven model of economic development with the exportation of goods to highly-industrialized nations. All four Asian Tigers have a highly educated and skilled workforce and have specialized in areas where they had a competitive advantage. For example, Hong Kong and Singapore became world leading international financial centers, while South Korea and Taiwan became world leaders in information technology.

 and these countries(NICs ;Hong Kong, Singapore, South Korea, and Taiwan) also produce and export high-tech products The highest concentration on labor-intensive exports( primarily textiles and garments) is currently in Pakistan(94%) , followed at some distance by China(58%) , India(50%), Indonesia(49%).

The lowest wages are probably in China and Indonesia, while Hong Kong is a high-wage economy.

Indicator: High-technology exports (% of manufactured exports)

70

60

50

Hong Kong
40

Singapore

South Korea
30

Pakistan China Turkey

20

10

0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

in Japan
Exports of goods and services (% of GDP)
20 18 16 14 12 10 8 6 4 2 0

Exports of goods and services (% of GDP)

1964

1960

1962

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

in Japan
GDP per capita (current US$)
45000 40000 35000 30000 25000 20000 15000 10000 5000 0

GDP per capita (current US$)

1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

in Hong Kong

Exports of goods and services (% of GDP)

250

200

150 Exports of goods and services (% of GDP)

100

50

0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

100

150

200

250

50

0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982

in Hong Kong

1984
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

GDP per capita (current US$)

GDP per capita (current US$)

in Singapore

Exports of goods and services (% of GDP)

250

200

150

100

Exports of goods and services (% of GDP)

50

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

in Singapore
GDP per capita (current US$)
45000 40000 35000 30000 25000 20000 15000 10000 5000 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

GDP per capita (current US$)

in South Korea
Exports of goods and services (% of GDP)
60

50

40

30

Exports of goods and services (% of GDP)

20

10

1976

1978

1960

1962

1964

1966

1968

1970

1972

1974

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

10000

15000

20000

25000

5000

in South Korea

0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980

GDP per capita (current US$)

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

GDP per capita (current US$)

DEVELOPMENT OF EXPORTS in TURKEY

Year 1980 was a turning point for the Turkish economy and foreign trade policies.
At that year, decisions on January 24, known as a comprehensive economic package to be implemented.

The main purpose of this package;

ensure the functioning of the national economy, according to the rules of free market mechanism and achieve integration with the world economy With this programme Turkey abandoned the import substitution industrialization strategy that makes the countrys economy outside a closed so that Turkey adopted "export-oriented industrialization" strategy.

 With liberalizing Foreign Exchange Regime in 1990 and further strengthened Turkish Liras' convertibility features, and the TL was released with the export and import.

January 24, 1980 within the framework of decisions, made as a result of the devaluation of TL against the U.S. dollar value has been reduced by 49% and is intended to give impetus to exports with domestic demand is trapped.

 Application of fixed exchange rate was abandoned and set on a daily basis so that a realistic exchange rate policy and flexible exchange rate system was introduced and tried to be applied.

Government has been supporting to exporters with a varity ways such as legal regulations, tax refunds, income tax exemption, allocation of foreign exchange, imports of raw materials and export credits as a customs deductible, some monetary and fiscal incentives provided.

 in 1987 the Turkish Eximbank was established to improve the competitiveness of Turkish exporters in foreign markets and to support Turkey export-oriented strategy

Turkeys export was 2.3 billion $ in 1979 in 1990 was 12.9 billion $
For 2010, in medium-term program(2010-2013), exports of Turkey were estimated $111.7 billion For 2013 in medium-term program(2010-2013), exports of Turkey were estimated $160 billion

in Turkey

10

15

20

25

30

0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Exports of goods and services (% of GDP)

Exports of goods and services (% of GDP)

10000

12000

2000

6000

8000

4000

in Turkey

0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980

GDP per capita (current US$)

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

GDP per capita (current US$)

in Turkey
14 12 10 8 6 4 2 0 1950 -2 -4 -6 -8 1960 1970 1980 1990 2000 2010 2020

GDP growth (annual %)

Thank you!!!!