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Export-led Growth?

Here’s a letter to a new correspondent:

Mr. Will Chaiprasit

Mr. Chaiprasit:

Thanks for your e-mail.

You ask if I “deny there is export led growth.”  No, I do not deny it.  But I do insist that care must be exercised when interpreting the meaning of this frequently heard claim.

Economic growth requires increases in production, and significant increases in production require increases in specialization.  Increases in specialization, in turn, require increases in trade.  If, for example, you specialize in producing ball-bearings, you’ll prosper only if you have lots of people to trade with – not only buyers willing to purchase your ball-bearings, but also many sellers willing to supply you with goods and services the consumption of which improves your standard of living.  If you produce and sell more and more ball-bearings but never spend your earnings on consumption goods, then you make other people wealthier (namely, those who buy your ball-bearings) but make yourself poorer (you work and work but take nothing for yourself in return, other than money that you render personally useless by refusing to spend it).

The people of a country can indeed grow more prosperous by specializing in producing goods and services and then exporting some or all of those goods and services to foreigners.  But this increased production and selling makes these producers more prosperous only if these producers eventually spend their earnings, as consumers, on goods and services that they import from foreigners.  A people who export more for the sake of importing more grow wealthier; a people who export more only for the sake of exporting more grow poorer.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030