Exports and Economic Growth : Further EvidenceEXPORTS AND ECONOMIC GROWTHFurther evidenceBela BALASSA*Johns Hopkins University, Baltimore, MD 21218, U.S.A.The World Bank, Washington, DC 20433, U.S.A.Received July 1977, revised version received September 1977This paper investigates the relationship between exports and economic growth in a group of eleven developing countries that have already established an industrial base. Separate consideration is given to manufactured and to total exports; in the case of the latter, adjustment is made for domestic and foreign investment and for increases in the labor force.1. Conceptual uia measurement issuesIn examining the effects of exports on economic growth in countries which have established an industrial base, we test the hypothesis that export-oriented policies lead to better growth performance than policies favoring import substitution. This result is said to obtain because export-oriented policies, which provide similar incentives to sales in domestic and in foreign markets, lead to resource allocation according to comparative advantage, allow for greater capacity utilization, permit the exploitation of economies of scale, generate technological improvements in response to competition abroad and, in labor-surplus countries, contribute to increased employment.In turn, once the easy stage of import substitution is over, substituting domestic production for imports entails rising costs due to the loss of economies of scale in small national markets and the relatively capital intensive nature of he products involved. As a result, the domestic resource cost of saving foreign exchange through continued import substitution under protection will exceed the domestic resource cost of earning foreign exchange through exports and the difference will tend to increase over time. Intercountry differences in trade policies may be expressed in a variety of ways. Under one alternative, intercountry differences in the growth of exports are taken to reflect the extent of export orientation; i.e. the choice between using resources for exports as against import substitution under protection. Thus, ceteris paribus, different rates of export growth will be associated with differences in trade policies. It is of further interest to examine the relationship between export growth and the growth of GNP net of exports. In an intercountry context, the correlation between these variables may be taken to reflect the indirect effects of exports operating through changes in incomes and costs. In turn, the correlation between export growth and GNP growth will provide an indication of the total (direct plus indirect) effects of exports on economic growth.In the case of countries that started from a low base, export growth rates are sensitive to the choice of the initial year. Correspondingly, further interest attaches to relating the absolute increment in exports to the absolute increment in GNP, which is less sensitive to the choice of the base year. This measure, the so-called incremental export-GNP ratio, too, can be transformed so as to relate the increment in exports to that of GNP net of exports.All these measures, as well as a variant of the measure proposed by Michaely, have been used to investigate the relationship between export expansion and economic growth in an eleven-country sample. The sample includes countries which have established an industrial base; within the constraints imposed by data availability, they have been chosen so as to provide representation of the principal tendencies as far as trade policies in developing countries are concerned.Among the countries included in the sample, Korea, Singapore and Taiwan adopted export-oriented policies at an early stage; they provided essentially free-trade treatment to exports; and granted some additional subsidies which equalized, on the average, incentives to exports and to import substitution. Israel and Yugoslavia started early with export promotion but their efforts slackened somewhat afterwards. Argentina, Brazil, Colombia, and Mexico continued further with import substitution and provided export incentives only from the mid-sixties onwards; at the same time, these countries did not generally ensure exporters free access to imported inputs. Finally, Chile and India pursued inward-oriented policies throughout the period under consideration, and their relatively weak export