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Writing this research paper need to read materials, like at least 8 papers that I will provide. There are several more papers that I cannot upload due to the limitation, and I will provide them directly to the tutor~ This assignment is really important, really thx for your help.The literature review must: be critically evaluating published academic literature in development economic theory or policy be word-processed using only one side of the paper and the pages should be numbered have all graphs and tables properly labelled and neatly drawn be checked for grammar and spelling errors consist of a list of chronologically sequenced references at the last pageReferencing for any data or information sources are compulsory and should follow the APA Style of referencing (6th edition), see http://library.aut.ac.nz/?a=275411 for the referencing style guide.You should NOT exceed 3000 words overall for writing this Literature Review (excluding references and footnotes/endnotes)This is an individual work assignment and Turnitin reports from all students should be emailed via AUT online before the submission deadline (See Guidelines in AUT online). The literature review is a more detailed analysis of your research seminar. It is therefore more like a research paper and thus will need to include the following components:1. Abstract: One or two paragraphs not exceeding 300 words, summarising what your topic comprises, what the conclusions from the literature review were as well as any important policy implications.2. Introduction: Not exceeding more than 1 page. You should introduce your topic here. At the end provide a paragraph on how your paper has been organised section-wise. 3. Literature review: This is the main component of this assessment, and you may want to sub-divide this further section-wise into the theoretical and empirical literature in your chosen topic. You should analyse each key article in some detail, trying to extract a common theme from a group of articles, if possible.4. Analysis and Policy Implications: This is your own analysis of the literature that you’ve reviewed, with a focus on the policy importance of the results stemming from your review.5. Conclusions: Summarise your final observations in this section, and any gaps in the literature that you identify, in this section, which should not exceed more than 1 page.6. References: List all your sources (journal articles, other papers, books and book chapters, websites) in alphabetical order using APA style of referencing. All these sources should also be properly cited in the text. Remember, Lecture notes CANNOT be used as a source of reference. Also, all web sources used should be clearly referenced with their URL and data accessed. REMEMBER TO CROSS-CHECK THAT ALL SOURCES CITED IN YOUR TEXT HAVE BEEN INCLUDED IN THIS LIST, AND THAT NOTHING IN THIS LIST HAS BEEN EXCLUDED IN THE TEXT. 7. Tables and Figures: You may want to include all Tables and Figures (with proper sequential numbering) at the end in an Appendix, and refer to it in the text. This will avoid formatting problems in including tables/figures in the text. You can then just cite the relevant table/ figure number in your text. 8. Formatting: Your literature review must have continuity in terms of page numbers, and your name and ID should be there on the first page. Remember that you will be assessed on your own writing and presentation skills including analytical interpretations of the literature and not merely on the basis of information you gather from the above sources. The paper must therefore, reflect your own understanding of the academic literature.Since this would require you to do some research on gathering the relevant literature and interpreting it, an early start would be highly advised. This would also help you to better plan your research presentation which should also be organised similarly.
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World Development,
Vol. 12, No. 9, pp. 931-949, 1984.
Printed in Great Britain.
0305-750X/84
$3.00 + 0.00
0 1984 Pergamon Press Ltd.
Beyond Export-Led Growth*
IRMA ADELMAN
University of California, Berkeley
Summary. – In light of the adverse conditions in the current international economic environment, this paper reassesses the feasibility of continuing to rely on manufacturing export-led
growth as the major development dynamic for most LDCs during the next decade. This paper
argues that after the initial stages of industrial development, the emphasis in policy toward
agriculture should shift from surplus extraction to surplus creation and to the generation of
demand linkages with the rest of the economy. The author compares the relative merits of
two alternative open development strategies – export-led industrialization and agriculturaldemand-led industrialization (ADLI) – by means of several simulation experiments. The
experiments are performed with a computable general equilibrium model of a small, lowincome, semi-industrial, open economy which is a stylization of South Korea of 1963. They
are carried out in an international environment assumed to represent the next decade based
on a rate of growth of international demand for imports of about half the 1960-73 rate. The
results support the ADLI approach on all counts.
1. INTRODUCTION
Developing countries are currently at a crossroad. They are simultaneously
facing major
short-term
adjustment
problems
to critical
foreign exchange
shortages
and the prospects
of a continuation
of a less favourable
international
environment
in which to carry out
these adjustments.
The present plight of the developing
countries is the result of both adverse changes in
the external
environment
since 1973 and the
policy choices made by the developing
countries themselves.
The two global recessions
in the Organization
for Economic
Cooperation
and Development
(OECD)
countries
during
the 1970s and the early
1980s induced
a
slowdown
in the volume of world trade which
had depressing effects on the prices and export
volumes of non-oil developing country exports.
It lowered the ability of developing
countries
to import
because of both volume and terms
of trade effects.
Despite
these
adverse
conditions
in the
international
environment,
developing countries
chose to continue
placing primary
emphasis
on rapid industrialization.
The implementation
of their commitment
to this goal required
increasing
capital goods, technology
and food
imports
from the OECD countries,
and the
financing
of these
imports
not only from
exports
but also by increasing external
debts
and decumulating
reserves. As a result, in 1982
the debt-service
obligations
amounted
to 21%
of the exports
of the average less-developed
country
(LDC) and were a crushing 53% of
exports of Latin America.
Reserves of foreign
currency
for the average LDC stood at a little
above three months of imports.
The results of the second oil-shock recession
hit
developing
countries
particularly
hard.
Between
1980 and 1982, total merchandise
LDC exports fell by -0.5%; the average annual
rate
of growth
of manufacturing
exports
fell from 12.4% in the previous seven years
to 4.1%; protectionist
sentiment
and protectionist legislation
were introduced
in the OECD
countries,
thus
leading
to lower
import
elasticities
out of stagnant
incomes;
and the
access of LDCs to commercial
credit to support
exports was severely decreased.
These
developments,
combined
with the
need
to revise
downward
projections
for
the growth
in world
demand
for non-fuel
merchandise
exports
from
LDCs,
call for
a reassessment
of the feasibility
of continuing
to rely on manufacturing
export-led
growth
as the major development
dynamic
for most
*Giannini Foundation Paper No. 711. I am indebted
to the Institute of International Studies for research
support and to Bela Balassa, Pranab Bardhan, Albert
Fishlow, Albert Hirshman, Alain de Janvry, Jack
Johnston,
Nathaniel Leff, Jack Letiche, Sherman
Robinson, Tibor Scitovsky, Amartya Sen, Hans
Singer, Paul Streeten and Larry Westphal for their
most valuable comments.
937
938
WORLD DEVELOPMENT
LDCs during
the next decade.
Most LDCs
which
are not already
newly industrialized
countries
(NICs)
with
established
export
markets are unlikely to be able to break into
international
markets for non-traditional
exports
in the next decade.
For them, the need to
search for an alternative strategy is acute.
In
searching
for
alternative
strategies,
one
should
distinguish
between
an opendevelopment
strategy, in which trade is an element of growth, and an export-led
strategy in
which trade is the major source of growth. The
major argument of this paper is that export-led
growth is not the only potentially
promising
open
development
strategy.
A reallocation
of investment
resources
within the economies
of LDCs in favour of an open development
strategy
which is agriculturally
driven rather
than export driven can lead to superior results
under the economic
conditions
of the coming
decade.
Pro-agricultural
strategies have usually been
associated
with self-sufficiency
and closedeconomy
ideologies.
It should be emphasized
that this is not the ideology
underlying
the
present
proposal.
This is not an argument
for a closed development
strategy.
The last
30 years
of development
experience
have
clearly demonstrated
the inferiority
of import
substitution
strategies.
It is rather a call for
a shift in sectoral emphasis for public investment toward agriculture
while maintaining
or
even, if necessary, switching to an open development strategy.
The development
strategy advocated in this
paper consists of a public investment
programme
designed
to induce
a progressive
downward
shift in the supply
curve of the domestic
agricultural
sector. The argument
in favour of
this strategy
rests both on its linkage effects,
in creating a domestic mass market for industrial
products
through
intermediate
and
final
demand
linkages,
and on its distributional
impact, through increasing
the supply of wage
goods and the incomes of the poorer members
of society.
The proposed
strategy
is simultaneously a growth programme,
an employment
programme
since agriculture
is considerably
more labour intensive than even labour-intensive
manufacturing,
a basic needs, food security
and income
distribution
programme,
and an
industrialization
programme.
It also constitutes
a foreignexchange-saving
programme
by reducing the need for food imports
which, in the
1970s have accounted
for an average of 13%
of total LDC imports.
Finally, the proposed
strategy
is also a risk-reducing
programme
since some of the investments
required
for
its implementation
(e.g. investments
in water
control and pesticides)
reduce weather dependence
and environmentally
induced
fluctuations in agricultural yields and since the strategy
substitutes
a development
dynamic
based on
the more controllable
increases
in domestic
demand
for the less controllable
increases in
world demand.
Discussions
concerning
the relative
merit
of agricultural
versus industrial
development
strategies
are not new. They were central to
the controversy
concerning
balanced
vs unbalanced
growth. They were also reflected
in
the debates
surrounding
the early five-year
plans of India (Mellor,
1976, 1968) and the
Soviet Union
(Domar,
1957). In the main,
the wrong views favouring emphasis on capitalintensive
import-substitution
industrialization
prevailed,
fueled by export, primary terms of
trade
and domestic
linkage
pessimism.
The
results
were
highly
dualistic
development
patterns,
slow GNP growth,
serious balanceof-payments
problems,
high
capital-output
and
capital-labour
ratios,
slow growth
in
food
production
and in employment,
and
deteriorating
distributions
of income.
The
response,
once these failures became apparent,
was to urge a shift by LDCs toward industrial
export-led
growth
and toward
‘basic needs’
oriented strategies. The adoption of the exportled strategies
during the high world-demand
growth
era of the mid-1960s
led to success
in GNP growth,
in labour absorption,
and in
industrialization.
But it was also accompanied
by increasing
international
indebtedness
and
by rapidly rising food imports.
As a result,
the debate
is now starting
anew, fueled in
part by renewed export pessimism, by increased
awareness of the vulnerability
to shocks arising
from export
markets,
and by the serious
liquidity and foreign-exchange
constraints
faced
by LDCs. A body of economists
(Streeten,
1982; Mellor, 1976; Singer, 1979; Hirshman,
1981; de Janvry, 1984) is urging the adoption
of agrarian, wage-goods strategies.
In analysing
the prospects
for attaining
the Lima target, which stipulated that industrial
production
in developing
countries should rise
from 7% of 1975 world industrial
production
to 25% by the year 2000, Hans Singer (1979,
p. 27) came to the conclusion
that an exportled strategy
was unlikely
to accomplish
this
goal.
Instead,
he advocated
an alternative
approach
which he called (not surprisingly)
a balanced-growth
approach
and which I shall
call an agricultural-demand-led-industrialization
(ADLI) programme.
He described this strategy
development
on
as one of basing ‘national
939
BEYOND EXPORT-LED GROWTH
agriculture as the primary sector and developing
industries
with strong emphasis on agricultureindustry
linkages
and
interactions’.
Paradoxically,
the ADLI strategy would stress the
raising of agricultural
productivity,
especially
that of medium-scale
farmers,
as a means of
achieving industrialization.
It would accomplish
the industrialization
goal by expanding internal
demand for intermediate
and consumer
goods
produced
by domestic industry.
In arguing for
this approach,
Singer (1979, p. 27) emphasized
the linkage effects of agriculture by writing:
This is a hopeful approach for a number of reasons.
A prosperous farming sector would require a large
volume of inputs from the industrial sector:
fertilizer, insecticides, weed-killers, water pumps,
agricultural tools and equipment of all kinds
ranging from hoes and ploughs to trucks and
tractors. Much of the increased agricultural production would require industrial processing, or
provide the basis for new resource based industries.
The development of agriculture will require a good
deal of new construction, with implied demand
for a wide range of construction materials and
equipment. Higher agricultural incomes are spent
with progressively more emphasis on industrial
consumer goods. Higher incomes from the industrial expansion would in turn provide an expanding market for agriculture, especially food, with
the associated multiplier and feedback effects
within the agricultural sector itself.
That agriculture
can have important
linkage
effects with manufacturing
has been recognized
for a long time. Most textbook
descriptions
of the role of agriculture
in economic development stress four functions
of agriculture;
these
are the provision
of a surplus for investment
in manufacturing,
a source of labour, a source of
food and a source of demand linkages. What has
not been recognized, however, is that the relative
importance
of these functions
must change
dynamically
with the economy’s
development.
And the conflict
between
agriculture
as a
source of surplus and agriculture
as a source
of demand for industrial
output has not been
sufficiently
stressed in the non-Marxian
literature (Lipton, 1977, is a notable exception).
It is the argument
of the present paper that,
after the very initial stages of industrial development, the emphasis in policy toward agriculture
should shift from surplus extraction
to surplus
creation
and to the generation
of demand
linkages with the rest of the economy.
The present
paper compares
the relative
merits of two alternative
open development
strategies
– export-led
industrialization
and
ADLI – by means of several simulation experiments. The experiments
are carried out in an
international
environment
intended
to represent the next decade during which the rate of
growth
of international
demand
for imports
is likely to be about half of what it was during
the 1960-73 period.
The
experiments
are performed
with
a
computable
general equilibrium
(CGE) model
of a small low-income,
semi-industrial,
open
economy
which
is a stylization
of South
Korea of 1963. The results support the ADLI
approach on all counts. In the assumed environment,
the ADLI strategy
generates
the same
rate of industrialization
as does export-led
growth
but leads to a higher rate of labour
absorption,
a better
distribution
of income,
better balance-f-payments
results, less poverty,
and a higher
rate of growth
of per capita
gross national
product (GNP) than export-led
growth.
There is no single reason
for the
superiority
of the ADLI strategy. These results
are attained
in part because
of the greater
increase
in total factor productivity,
in part
because of the larger reduction
in unemployment, in part because of the higher increase
in exports, and in part because of the resource
reallocation
effects.
The next section
describes
the model and
the stylized
economy.
The third section presents the simulation
results.
The paper concludes with a general discussion.
2. THE MODEL
The CGE model consists of an economywide, simultaneous,
multisectoral
model that
solves endogenously
not only for quantities
but also for prices (for detailed
descriptions
of the model,
see Adelman
and Robinson,
1978, and Dervis, de Melo and Robinson,
1983). The version of the model used here
was developed
by Sherman
Robinson
and
Jeffrey
Lewis, in 1982, as part of a World
Bank research project. (For a full description,
see Kubo et al., 1983.) The core of the model
consists
of the reconciliation
of potential
demand
and supply imbalances
in the factor
and commodity
markets by price adjustments
which simulate
the workings
of the markets
of labour, commodities
and foreign exchange.
The technological
and behavioural
functions
are non-linear
and incorporate
substitution
possibilities
among factors in production
and
among commodities
in final demand. Imports
and domestic
production
in a given sector are
neither
perfect
substitutes
nor
complete
complements;
rather, there is an elasticity
of
substitution
among them which lies between
940
WORLD DEVELOPMENT
zero and unity. The model solves for: wages,
profits, product
prices and the exchange rate;
sectoral
production,
import,
export,
employment, consumption
and investment;
the flow
of funds, GNP and the balance-of-payments
accounts;
and for the functional
and personal
distributions
of income.
Production
technology
is represented
by
fixed
input-output
coefficients
for
intermediate
goods and CES functions
for labour
and capital.
In the factor
markets,
labour
demand arises from profit-maximizing
behaviour
of producers.
The supply of labour is disaggregated by skill type. It is assumed fixed within
a given period and only its sectoral allocation
is allowed to vary. Farmers and service workers
are immobile
within
each period
although
mobile between periods. The model determines
market-clearing
wages for skilled workers and
their sectoral
allocation;
unskilled
wages are
fixed, and unemployment
is allowed to develop.
The existence
of such unemployment
is not
critical to the results, as will be apparent from
the sources
of growth
decomposition
given
later.
The demand for commodities
is responsive
to relative price and income variations.
The
price responsiveness
arises both because of the
use of LES consumption
functions and because
of the trade specification
which induces pricesensitive
substitution
among
imports
and
domestic
production.
The incomes
of consumers are determined
in the factor markets
after subtracting
taxes. The demand for commodities
by sector is determined
from these
incomes
(given
the household
savings propensities)
and from the government
consumption
function.
Relative
prices
that
clear
commodity
markets
are then solved so as
to equate demand and supply. The wholesale
price level is taken as numeraire
and maintained at unity to set the level of absolute
prices. The balance of trade determines
the
net demand for foreign exchange. The exchange
rate adjusts so as to maintain a predetermined
level of foreign capital inflow in the base run.
In the experiments,
the exchange
rate was
fixed to the initial period value, and foreign
capital
inflow
was allowed
to adjust.
The
latter specification
was adopted for the experiments
in order not to allow a progressive
overvaluation
of the exchange
rate (which
characterized
the base run) to bias incentives
against exports in these experiments.
Several macro-closure
rules are possible for
the model.
The one chosen
for the ADLI
experiment
forces investment
to adjust directly
to the enlarged or diminished supply of domestic
plus foreign
savings. This closure rule gives
intermediate-run
maximum
sensitivity
to
balance-of-payments
fluctuations
arising
in
international
markets. It also makes investment
maximally
sensitive
to the domestic
savings
rates of households
and to changes in the
domestic
distribution
of income. Since anticipated
drops in domestic
savings rates when
the functional
distribution
of income shifts in
favour
of farmers
have been used to argue
against agricultural
strategies,
the closure rule
adopted
for the present
experiments
allows
a conservative
evaluation
of the ADLI strategy
by biasing
the experimental
results
against
it on this count.
3. SIMULATION
RESULTS
In 1963, Korea was in a ‘pre-takeoff’
stage.
It was a very poor country,
whose per capita
income was around $80 (1963 dollars), converted
at the official (overvalued)
exchange
rate. It was an open economy
with a very
large trade deficit; exports
were 6% of GDP,
and the trade deficit accounted
for 16% of GDP.
About half of its labour force was employed
in agriculture,
30% in manufacturing,
and the
rest in services. It was a consistent
food-deficit
country; its cereal imports accounted
for about
a quarter of its total consumption.
Thus, the
Korea of our study is a poor, open, negative
balance
of trade,
large food-deficit
country
typical of a large class of low-income
LDCs.
Table 1 summarizes the results of the simulation
experiments.
The
actual,
high-worlddemand evolution of the economy is summarized
as Experiment
I. To derive the counterfactual
base run, II, the rate of growth of world demand
was cut in half; and the price elasticity of world
demand was increased
by 20% to simulate increased competition.
The export demand specification used in both runs I and II assumed a
logistic demand curve for exports with an inflection point which shifted over time but at a
slower rate in Experiment
II than in Experiment I. The results were to decrease the rate of
growth of per capita GNP by 15% while cutting
the rate of growth of exports by 60% and the
rate of growth of manufacturing
by 30%. The
structure of production
and of exports became
more agriculture-oriented
indicating that, under
lower rates of growth of world demand, the
comparative
advantage
of agriculture
rises a fact consistent
with the proposed
strategy.
Foreign
capital inflow rose by 30%, and the
exchange
rate fell by 35%. Urban unemployment rose from 0 to 14%, but the distribution
BEYOND EXPORT-LED GROWTH
improved
very slightly as the incomes of the
fourth to ninth deciles fell by less than did the
incomes of the richest and the poorest.
The export-led growth strategy was simulated
by giving 60% export subsidies
to exporting
sectors.
In addition,
the bias against exports
in the low-worlddemand
base run was removed
by a combination
of abolishing
tariffs and
a 10% devaluation.
Finally,
to simulate
the
productivity-improving
effects
of exporting
which
arise from
economies
of scale and
learning,
the rate of growth
of total factor
productivity
in the
exporting
sectors
was
increased by 50% (from between
1.3 and 2.4%
annually
to between
1.8 and 3.6%). This
strategy
increased
the rate of export
growth
by 45% while increasing
import
growth
by
only …
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