An Analysis of Exports and Growth in LDCs

KYKLOS, Vol. 43. Fasc. 4.579-591

An Analysis of Exports and Growth in LDCs

ENRICO COMMBAPO

I.

1 . An Introduction to Exports and Growth in LDCs

The role of exports in the growth process of Less Developed Countries (LDCs) is usually attributed to three types of mechanisms.

First, it is believed that LDC growth largely depends on industrialization’. But the level of domestic demand in most LDCs is low; hence, the importance of pursuing export-biased trade strategies in order to have access to world demand.

Secondly, although it is acknowledged that export promotion policies2 are not fully satisfactory as regards microeconomic efficiency, they are never-the- less deemed as the least damaging; in other words, they benefit total factor productivity more than any other policy3.

Thirdly, it is claimed that exports make growth easier also in the long run, since they lead to more savings, higher technological progress, better ratings in the international financial markets (and thus easier access to foreign 10ans)~.

*Associate Professor of Economics, Univenitadi Torino.1 wouldliketoacknowledgevaluable comments from A. BELTRATTI, R. CASSEN, B. C o r n , H. SINGER, F. SITWART, A. WINTERS, as well as seminar participants at Queen Elizabeth House in Oxford and CEPR/STEP in Venice. I am alsograteful to St. Antony’s College and Queen Elizabeth House, Oxford, to which I was affdiated at the time this work was carried out.

1. Cfr., among others, World Bank [1987]. 2. Contrary to common sense, in the literature export promotion (EP) does not refer to policies

biased towards exports but, rather, to free trade (or to situations characterised by a trade-neutral sum of distoltions). Cfr., for instance, KRUEGER [1985, p. 201: ‘an export-oriented strategy is one in which there is no bias of incentives toward production of import substitutes’.

3. Cfr., among others. BALASSA [1978], B H A G W A ~ [1985]. 4. Cfr.KRUeGER (19891

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ENRICO COLOMBATID

On the other hand, such theses have not been immune from criticism5. According to ADELMAN [1984, p. 9381, for instance, although exports are

important, ‘an outward-oriented development strategy which is agriculturally driven rather than export driven can lead to superior results’; similarly, SINGER [1984, p. 9511 suggests that ‘most advocates of export-orientation would agree that self-sufficiency in food production is a desirable objective, but many would place it below export orientation whereas our results suggest the opposite’.

As for the second point, one might argue that the many distortions which affect an LDC hardly make it an appealing case for standard microeconomic analysis. The corn arison between n-th best solutions may easily give origin to ambiguous results .

Dynamic effects are even more uncertain. There is probably some truth in the fact that open economies generally attract more capital from abroad, be it direct investment orloans7. But conclusive evidence on savings and technology is lacking’. Furthermore, if one rules out the case of factor reversals, the Rybczynsky theorem suggests that the capital inflows which characterise virtually all LDCs ‘will lead a typical underdeveloped nation to expand its capital-intensive good and contract its labour intensive good. ...[ Since most LDCs have a comparative advantage in labour-intensive goods, that may] lead to import substit~tion’~; in other words,EP today might eventually lead to more inward-oriented economies tomorrow, i.e. under free trade such economies would gradually become less open. Indeed, some would argue that the reverse may be true, i.e. that ‘IS today might eventually lead to more outward-oriented economies tornorrow*l0.

5. See JUNG and MARSHALL [ 19851 and MILNER [ 19881 fora brief but exhaustive survey of the

6. Cfr. J m 119791 for a theoretical discussion in greater detail. Some comments on the

7. The LDC world, however, also provides plenty of examples of heavily indebted and rather

8. See BHACWATI [1978,1985]. 9. Cfr. ~ I G H T O N [ 1980, p.631; some empirical suppofi forthis view is in JUNG and MARSHALL

[1985]. 10. This point is due to H. SINGER (private correspondence).

main argumenls and results which have characterised the debate.

empirical evidence are put forward in section 2.

closed economies (Argentina is surely one of them).

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EXPORTS AND GROWTH IN LDCa

2 . Some Issues in Empirical Analysis

Empirical research on the role of Ep policies has not yielded conclusive results either.

At thebeginning, demand was considered the dominant factor for export-led growth. Supply was also taken into account, but was deemed as largely dependent on demand pressures. Then, a shift in emphasis occurred, whereby EP was thought to enhance higher efficiency and thus higher income and growth rates. But it hasalsobeenargued that,although trademay indeedmakedomestic adjustment easier and faster, growth is actually originated by supply-side factors, not by trade. Of course, according to this view, trade may enable the growing country to take greater advantage of its new opportunities, but first such opportunities must be created from within, i.e. domestic supply must be competitive'l.

It must be admitted, however, that the existing empirical analyses have often failed to make a clear quantitative distinction among the various approaches, so that the evaluation of the link between growth and trade in LDCs remains uncertain12.

As a matter of fact, most authors make use of an export-augmented Cobb- Douglas production function, so that

where Y stands for production and X for exports: K and L are factors of pr~duction'~.

This means that the link between trade and growth is analysed by describing the way an economy works. It would indeed be a plausible way to proceed as long as one is certain that an LDC economy is actually behaving according to (1). Unfortunately, the choice of (1) is justified neither ex ante (from a theoretical point of view), nor ex post (the statistics usually presented are not enough to evaluate the quality of the estimates and thus of the functional choice).

1 1 . Models on price competiliveness are presented in JUNG and LEE [ 19861 and RlEDEL [ 19881. Cfr. M t W [1982] for nm-price variables, within the framework of the S. Korean economy.

12. Cfr. KAVOUSSI I19851 and SINGER and GRAY [I9881 for evidence on the ambiguity of the linkbetween trade and growth; and also CHow 119871 for an empirical analysis of causalitybetween expon expansion and the development of manufacturing industries in eight NICs.

13. cfr. TYLER [19811, &VOUSsI 119841, BALASSA [1985l, [1985].

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ENRICO COLOMBATTO

Thus, doubts are not so easy to dismiss. First, it is hard to believe that such functions are stable in LDCs, neither

through time, nor across c~untries'~. Secondly, even if the production-function approach claims there exists a

strong association between export performance and GDP growth, the estimated elasticity of GDP with respect to exports in LDCs turns out to be rather low, and not far from 0.1 (with a maximum of about 0.3 in R A M [1987], and a minimum of about 0.03 in TYLER [1981]). Among other things, this would imply that - ceterisparibus - an export-led economy must indeed open up considerably if it wants to grow: a sign of weakness rather than of health, since it shows how hard it would be for an LDC to take advantage of favourable foreign-market conditions.

Thirdly, it is quite possible that exports favourably interact with factor productivities, but such interaction is omitted in the specification of (l), so that no conclusion can be drawn in this respect15.

Finally, exports favourably affect growth as long as they are increasing: but the impact of exports per se on LDC growth remains dubious, also because they usually enter the regression as a growth variable, not as their share out of GDP.

11.

I . Growth, Exports and Openness

In the remaining sections of the paper some new quantitative evidence is analysed; in particular, after emphasising the scope of the paper (section l), a model on expected openness is presented in section 2, the choice of the variables is discussed in section 3, and the estimates reported in section 4; the results are then commented in section 5. Some conclusions and suggestions for future research are put forward in the final chapter (HI).

This paper re-examines the results generally accepted in the literature -and briefly discussed in the previous section - from a different viewpoint. As a

14. For instance, the production-function approach is often in contrast with the generally accepted view according to which 'the positive association of the economy's growh with the growth of the export share. appears to be particularly strong among the more developed [LDC] countries, and not to exist at all among the least developed' [ M ~ A E L Y , 1977, p. 521.

15. Cfr. FEDER [1983] and RaM [I9871 for attempts in a different direction. but with similar results.

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EXPORTS AND GROWTH IN LDCs

matter of fact, the thesis whereby LDCs could achieve higher levels of development by increasing exports, coupled with the evidence about an export-elasticity of GDP considerably less than one, implies that both exports and the export-to-GDP ratio (henceforth ’openness’, indicated as OPX’6>, are generally below their optimum size.

Exports and the production-possibility frontier are thus taken into account. These two variables may of course change considerably across countries, and so may openness. Nevertheless, if it is true that LDC exports are generally below their optimum level, one should find that - ceteris paribus - more outward-oriented countries tend to show a higher level of development (which is here considered in terms of GDP per capita and indicated as YH17).

The existence of such correlations is therefore studied. First, a simple model to explain openness is put forward: then, the expected level for openness is estimated and deviations identified. Finally, we proceed to the analysis of the link between such deviations and YH. If it is true that LDC exports (and openness) are suboptimal, a high sitive correlation between YH and unexpected OPX will be ascertained’yin that case, more vigorous EP policies should be recommended to LDCs and also allowed by potential importers”.

16. Thisisbynomeanstheonlypossiblemeasureforopenness; inBALAss~[1985],forinstance, this variable is defmed as per capita exports.

17. Of course, GDP per capita is not the ideal way to measure development. GDP should in fact be adjusted by purchasing-power parities (say, along the lines suggested in SUMMERS and HESTON [ 1988]), and also complemented by non-income-related measures, such as the M o m ’ s index (cfr. MORRIS [1979, ch. 51).

In this paper, however, the more conventional GDP per capita measure has been accepted in order to make the results comparable with those presented in most of the literature.

18. Unexpected openness - i.e. deviations of actual openness from expected openness - is called ‘trade orientation’ in BALASSA [ 19851.

19. This aproach differs fromthetraditionalone. whichconsiders onlythecorrelationbetween observed openness and development (see, for instance, the seminal contribution in MQiAELY [1977]). As a matter of fad. the usual methodology can lead to dubious results, since a zero correlation coefficient may still be consistent with a non-zero association between OPX and YH. hidden by the interaction with other variables.

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ENRICO COLOMBA'ITO

2 . A Model for Expected Openness

In order to determine expected openness, let us consider a typical LDC composed of three sectors, defined as non tradeables (N), exportables (X) and importables (M). Let n be the share of N out of GDP openness can thus be analysed by studying the comparative statics of the exports-to-tradeables ratio.

Exports are of course that quantity of X which is produced, but not consumed domestically, i.e. (X -X ).

Expected openness is thus defined as P C

From the production side, optimality requires

where MC (i) and p (i) are the marginal costs and the international price of commodity i, respectively.

Therefore, under increasing opportunity costs and constant production factors, Xp is an increasing function of p(X)/p(M), and the opposite holds for MP.

As regards consumption, a homothetic collective utility function is assumed, such that

For a typical LDC, therefore, exports increase, the higher p(X)/p(M), the lower MC(X)/MC(M) and U N M . More generally, expected openness can be re-defined as

MRT, TOT, MRS) 8 (MRT, TOT. Z)

OPX = (1-n) . ~ ( M R T , TOT, M R . ~ = (1-n) .I( 9 + M P

where n MRT = marginal rate of transformation [MC(X)/MC(M)] TOT =terns of trade p(X)/p(M) M R S =marginal rate of substitution U f l ~ Z =vector of production factors

=share of non-tradeables out of GDP

5 84


Openness is thus: (i) a decreasing function of n; (ii) a decreasing function of MRT; i.e. openness is higher, the lower the

opportunity cost of Xp in termsof MP. That will be the case when the production of X requires significant quantities of country-specific production factors;

(iii) an increasing function of TOT, which may vary across LDCs because of the differences in the commodity composition of the X sector;

(iv) a decreasing function of Z, since it seems plausible to assume that industries exhibit initially increasing returns to scale, so that the smaller the availability of factors, the higher the need to concentrate their allocation in favour of X, where the country is supposed to enjoy a comparative advantage, and against M20;

(v) a decreasing function of MRS, since the higher the domestic preference for X, the lower the (X -X ) difference.

On top of that, aid may also play a role, although its sign is ambiguous. In particular, openness is reduced if aid is used to increase domestic absorption of X or to finance the purchase of intermediate inputs for sector M, it is increased if aid is used to finance the purchase of intermediate inputs for sector X; it is unaffected if aid is used to expand final consumption of commodity M?l

P C

3. The Choice of the Variables

In order to estimate expected openness within the framework outlined above the variables have been chosen as follows.

The share of non-tradeables out of GDP has been computed as the share of government consumption out of GDP, both in current local currency units, and indicated as NY22.

20. The assumption of a homothetic collective utility implies that the stmcture of preferences does not change as Z vanes; therefore - cereris pribus - it is comct to expect an increase in openness as Z shrinks, and a decrease as Z increases.

As a matter of fact, net inflows may cause an increase (decrease) in OPX if they are used to buy intermediate goods for the X (M) sector, whereas net outflows have a zero (positive) effect if they are financed by cuts in the domestic absorption of final commodities produced by sector M (X). Thus, our choice to ignore capital movements implies a 'neutral' allocation of net inflows (between M and X). with outflows financed by cuts in the domestic consumption of M.

21. Capital movements, though important, are almost ignored in this paper.

22. As repotled by IMF, International Financial Statistics, rows 91f and 9%.

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ENRICO COLOMBATO

Country-specific factors are generally restricted to natural-resource endowments and to climatic conditions favourable to given crops. The treatment of such endowments in the present context is, however, difficult, also because the costs associated to their exploitation should be taken into account as well: and for these reliable data simply do not exist.

The natural-resourceendowments variable has therefore been proxied by FS=F/S, where F stands for natural-resource exports23 and S indicates the area of the

The appropriate variable to describe soil and climatic conditions has been defined as the value of agricultural exports (A) per square kil~mete?~, times population density (ASH = (A H / S ) ) .

As for the terms of trade, their role is due to the fact that LDC exports are far from homogeneous. A different commodity composition can thus imply different terms of trade. The absence of any reasonable, cross-country comparable data on export values is well known. We have therefore preferred to limit ourselves to a very broad partition of exports into three categories: manufactured commodities, natural resources and agricultural commodities.

2 26

23. Natural resources are expressed in million dollars, and refer to petroleum (not refmed), natural gas, tin, zinc, phosphates, silver, copper, antimony. wolfram, lead, nickel and fernnickel, iron ore, bauxite, asbestos, wood. rubber, diamonds, as reported in XMF, lnternationul Financial Skatistics, 1988 Yeahook. rows 70 ...

24. Areas (in thousand square kilometers) are drawn from the World Bank, Development Report. 1988.

25. Agricultural exports are expressed in million dollars, and refer to com, wheat. copra, groundnuts, palm oil, sisal. meat, beef. fishmeal, hazelnut, olive oil, coffee, soybeans, sugar, bananas, citrus fruit, potatoes, conon, rice, cocoa beans, pasta and butter, tobacco, tea, vanilla, cloves, tapioca, pulses, hides and skins, as reported in IMF, InternationalFinuncialS~tistics, 1988 Yearbook, rows 70 ...

26. Population data (in million units) are drawn from IMF, Internationul Financial Statistics, 1988 Yearbook. I h e ratio of agricultural exports to GDP would perhaps be a more obvious proxy for climatic and soil conditions. But domestic absorption of agricultural production as a share of GDP is likely to vary with YH, and thus the agricultural-export share does not necessarily vary with the agricultural-production share. By using the A/Y ratio one would therefore describe both different shapes of the production-possibility frontier and the effect of non-homothetic individual consumption. For this reason the GDP component has been eliminated (and thus the consumption effect) by using agricultural exports per square kilometer (which approximate comparative advantage in agriculture), corrected by population density (which takes away the influence of domestic consumption).

586


The composition effect is therefore proxied by FX (the share of natural-resource exports out of total exports) and AX (the share of agricultural-commodity exports out of total exports)27.

The effect due to the endowment of production factors under the increasing- returns-to-scale hypothesis has been described in terms of GDP (in million US dollars) in a quadratic form (Y and Y2).

Nothing will be assumed about the marginal rate of substitution, thereby implying that all countries have the same preferences. It is of course a rather strong assumption, both because cultural differences are most likely to play a significant role, and because preferences change with welfare (so that ho- motheticity may no longer hold). Finally, the aid variable (AIDY) has been reported as the weight of net total transfers out of GD$8.

4 . The Estimates for Expected Openness

A preliminary set of estimates has been attempted by running OLS regressions with a sample of 47 LDCs in three different years - 1971, 1978 and 198529. The variables are defined as:

OPX: degree of openness (share of exports out of GDP) NY: FS: natural-resource exports per km2 ASH: agricultural exports per km2, times population density, xlO00 FX: natural-resource exports out of total exports AX: agricultural exports out of total exports Y: GDP (in million US dollars), current values Y2: (Y squared)/106 AIDY:net total transfers out of GDP

government consumption out of GDP

27. The data are drawn again from IMF. InrerMliOMlFiMnCialS&tisrics, various years. 28. Source: IMF, InterMrioMl Financial Storisrics, various years. 29. The countries in the sample are all those for which a complete set of data was available for

the three years considered: Burma, India, Indonesia, Israel, Jordan, Korea, Malaysia, Pakistan, P a p a N.G., Philippines, Sri Lank4 Syria, Thailand; Botswana, Burlrina F., Burundi, Cameroon, Che d’lvoire, Egypt, Ethiopia, Ghana, Kenya, Malawi, M m c o , Nigeria, Rwanda, Tanzania, Togo, Tunisia, Zambia; Argentina, Bolivia, Brasil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Peru, Uruguay; Cyprus. Dominican Rep., Haiti, Jamaica.

The choice of those years is justified by the need to divide the whole period by taking into account the two major oil shocks, in 1973n4 and 1979/80.

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ENRICO COLOMBA'ITO

The results are presented in Tables 1.1-1.3; the value in brackets under the dependent variable is the mean value for OPX in the relevant year. The first two columns in each table refer to the complete set of parameters, while in the second couple of columns FS and AX -which are likely to be non-significant - have been dropped. All the comments which follow refer to the second set of estimates . 30

To ble I . I

Dependent Variable: Q E L - 1971 (0.16)

Regressor Coefficient 1-ratio Coefficient t-ratio const. 0.146 2.6 0.109 3.0 NY 0.375 1.7 0.407 -i.9 FS -0.003 -0.6 ASH 77E-6 1.1 51E-6 0.8 Fx 0.167 2.6 0.191 4.2 AX -0.061 -0.9 Y -13E-6 -2.8 - 12E-6 -2.7 Y2 20E-5 2.4 19E-5 2.2 AIDY -0.412 -1.8 -0.356 -1.7

R2=0.51 R2 = 0.49 S.E. Regr. = 0.084 F (8.38) = 4.9 Het. F (1.45) = 14.5

S.E. Regr. = 0.083 F (6.40) = 6.4 Het. F (1.45) = 12.7

30. The presence of heteroscedasticity is detected by regressing squared residuals on squared OLS fitted values (modified Breusch-Pagan test).

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EXPORTS AND GROWTH IN LJXs

Table 12

Dependent Variable: a E K - 1978 (0.20)

Regressor Coefficient t-ratio Coefficient t-ratio

const. 0.109 1.8 0.089 2.6 NY 0.666 3.9 0.630 3.9 FS -0.002 -1.1 ASH 30E-6 1.5 23E-6 1.2 Fx 0.099 -1.5 0.102 1.9 AX -0.047 -0.6 Y - 1E-6 -0.8 - 1E-6 -0.1 Y2 OE-5 0.4 0e-5 0.2 AIDY -0.461 -2.2 -0.386 -1.9

R2 = 0.52 S.E. Regr. = 0.094 F (8.38) = 5.1 Het. F (1,45) = 0.1

R2 = 0.50 S.E. Regr. = 0.093 F (6,40) = 6.6 Het.F(1,45)=1.3

Table 1.3

Dependent Variable: Q P L - 1985 (0.20)

Regressor Coefficient t-ratio Coefficient t-ratio

Const. 0.105 1.3 0.071 1.5 NY FS

0.5 15 2.7 0.509 2.9 -0.003 -0.6

ASH - lE-6 -0.0 - 4E-6 -0.2 Fx AX

0.150 -1.7 0.166 2.4 -0.wo -0.7

Y OE-6 -0.0 0e-6 0.2 Y2 - OE-5 -0.2 - OE-5 -0.3 AIDY -0.216 -0.7 -0.160 -0.6

R2 = 0.35 R2 = 0.34 S.E. Regr. = 0.134 S.E. Regr. = 0.132 F (8.38) = 2.6 F (6.40) =3.4 Het.F(l,45)=3.2 Het.F(l,45)=3.5

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ENRICO COLOMBA'ITO

As a whole, the fit is satisfactory for 1971 and 1978; not very high for 1985. The theoretical framework put forward in the previous sections seems therefore to be acceptable for the Seventies, less so for the mid-Eighties. In other words, expectations about openness based on microeconomic fundamentals seem to provide a good approximation for actual LDC behaviour in the Sevznties, but not in the Eighties.

As for the estimated parameters, it is interesting toremark that thecoefficient on NY is not negative (as expected), but positive and significant: that implies that the production of non-tradeables in LDCs does not crowd out tradeables, but complements them. In other words, sector N - say infrastructure - does not subtract resources to X and M, but makes production in these industries more efficient.

Furthermore, the endowments of natural resources favourably affect the terms of trade, but not the shape of the production-possibility frontier; i.e. favourable endowments do lead to greater specialization, but because of the higher international price (if compared with LDC manufactured exports), not because of a comparative advantage in physical productivities. This phenomenon seems to be reversed for climatic and soil conditions, which may lead to a light comparative advantage in physical factor productivities, but not in prices.

The small country effect is as expected in 1971; it disappears in 1978 and 1985, thereby implying that in the late Seventies and in the Eighties LDcs faced problems in pursuing specialisation policies.

Finally, in the Seventies aid seems to have taken away some pressure from export-orientation policies (and encouraged domestic absorption of X and/or purchases of intermediate inputs for sector M); but such a role - already far from strong -was transformed into a stimulus to expand final consumption of imported goods in the Eighties.

All in all, it does make sense to analyse the trade attitude of LDCs in terms of microeconomic fundamentals, although the importance of other variables may not be ignored, especially in the mid-Eighties. As a matter of fact, this may explain why generalised and stable3' micro-models are a feasible and acceptable proposal on aggregate, but their results might be questionable if applied to individual countries without examining their situation in greater detail.

31. Asama~roffac~,thestruchlreofthemodelhasremainedconstantovertheperiod:aChow test on theestimatedparameters revealsno significant changeneitherbetween 1971 and 1978 (with F(7.80)=1.3),nortetween 1978and 1985 (with F(7,80)=0.4).noroverthe entire fiteen-yearperiod (with F(7,108)=1.3).

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EXPORTS AND GROWTH IN L D C s

There is however a common pattern which our results underline with some strength: as a matter of fact, residuals are always increasing with actual openness - the correlation coefficient being equal to 0.71 in 1971 F d 1978, to 0.81 in 1985. In other words, there is evidence pointing out that either open LDCs are too open, or closed LDCs are too closed, or both.

This might actually suggest an omitted-variable problem, and that is the scope of the analysis presented in the next section.

5. The Results on the Link with Growth

In order to compare the residuals (RES) of the above regressions with GDP per-capita (YH) there are two possible ways to proceed. On the one hand, one can analyse the correlations between RES and YH, on the other one can run new estimates adding the YH variable and then comment on the new results.

The correlation coefficients are shown in Table 2, where the values in brackets refer to the F test with (1,45) degrees of freedom; the rank correlation coefficients have also been computed (and indicated with the S prefix):

Table 2

Correlation Coefficients

1971 1978 1985 YH vs RES 0.13 0.18 0.06

(0.78) (1.43) (0.16) SYH vs SRES 0.32 0.21 0.12

(4.99) (2.16) (0.70)

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ENRICO COLOMBATKI

The YH-augmented regressions are shown in Tables3.1-3.3, with the usual notation:

Table 3.1

Dependent Variable: Q E L - 1971 (0.16)

Regressor Coefficient t-ratio

const. NY ASH Fx Y Y2 AIDY YH

0.1 13 0.318 388-6 0.191 -13E-6 2 1 E-5

-0.394 40E-6

3.1 1.3 0.6 4.2

-2.8 2.4

-1.8 1 .o

R2 = 0.50 S.E. Regr. = 0.083 F (7.39) = 5.6 Het. F(1,45)= 14.2

Table 3.2

Dependent Variable: a E x - - 1978 (0.20)


Const. 0.074 2.1 NY 0.591 3.6 ASH 248-6 1.3 Fx 0.113 2.0 Y -1E-6 -0.8 Y2 OE-5 0.3 AIDY -0.385 -2.0 YH 248-6 1.6

R2 = 0.52 S.E. Regr. = 0.093 F (7.39) = 5.9 Het. F (1.45) = 2.4

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EXPORTS AND GROWTH IN LDcs

Table 3.3

Dependent Variable: a E x - - 1985 (0.20)


Const. NY ASH Fx Y Y2 AIDY YH

0.067 0.484 - 4E-6 0.172 OE-6 - OE-5 -0.168 9E-6

1.4 2.6 -0.2 2.4 0.1 -0.2 -0.6 0.4

R2 = 0.34 S.E. Regr. = 0.133 F (7.39) = 2.9 Het. F (1,45) = 4.1

As far as the simple-correlation coefficients are concerned, it seems that there was no significant link between GDP per-capita and openness in none of the periods considered.

This result is also confumed by the regressions in Tables3.I-3.3, where the link between YH and OPX is always non-significant (and does not alter the results shown in Tables I.]-1.3). Furthermore, the absence of any significant relation comes back in the correlation coefficients between OPX and the residuals from the regressions without and with YH among the explanatory variables. As a matter of fact, the fall in the value of the coefficient is marginal: from 0.71 to 0.70 in 1971, from 0.71 to 0.70 in 1978, and it remains unaltered in 1985 (equal to 0.81 in bolh cases).

On the other hand, according to the rank-correlation coefficients, it would seem that the link between development and outward orientation had been significant in the early Seventies, but then disappeared from the late Seventies onwards.

Of course, the difference in the results is due to the fact that rank-covelation coefficients do not make full use of the information contained in the data; therefore, the preliminary conclusions drawn above maintain their general validity. Rank correlation over the 1971-1985 period, however, allows us to notice

that relative distances in the levels of development (YH) and/or in the intensity 593

ENRlCO COLOMBA'ITO

of what may perhaps be defined as trade policies (RES) were crucial to rule out the link between openness and development in 1971 only. In particular, one may observe that in that very year increases in development levels were associated with uneven increases in outward orientation (see the first column in Table 4), and that increases in outward orientation were associated with even more unpredictablevariations in the level of development (see first row in Table 4)32.

Table 4

Correlation Matrix (1971)

YH SYH RES 0.13 0.26 SRES 0.18 0.32

111. CONCLUDING REMARKS

The analysis carried out in the previous sections argues that higher growth rates in exports do not necessarily benefit economic growth33. As a consequence, recommendations in favour of greater efforts to open up should be accepted with caution by LDC policy makers. True, openness is frequently too high or too low with respect to its expected value (Chapter II, section4); however, these deviations bear no significant relation with the level of development (Chapter 11, section 5) . Therefore, opening up is not necessarily the right policy to pursue in order to achieve higher levels of development.

Such deviations can have various causes. One of them is the adoption of trade policies (either import-substitution or export-promotion); should that be actually the case, our results would imply that trade policies have rather limited

32. Therefore, it follows that rankcorrelation coefficients are misleading because of the

33. Cfr. SINGER [1988] and the literature quoted there for similarconclusions, although derived unexplained dispersions in trade policies and -wen more - in development.

with a different methodology.

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effects on development. Another set of answers may be found in non-trade movements: indeed, debt policies and debt-service conditions differ substan- tially across countries, and so does the extent to which such differences force LDCs to deviate from what suggested by ‘trade only’ rationality. Finally, it should also be emphasised that the homothetic-utility assumption may be responsible for the relatively low explanatory power of expected openness - not to mention the omitted-variable bias it may imply as far as the estimated parameters are concerned.

On the other hand, it is also worth stressing that the argument presented here means neither that trade is irrelevant for LDCs, nor that trade policies are useless.

With respect to the former, one is not denying the well-known effects due to specialization and to the access to world demand, which in turn allow greater efficiencies in production and wider choices as regards the industries where specialization is viable. Nevertheless, there is ground to believe that trade patterns in LDCs do not follow specialization and optimalchoice criteria very frequently. In other words, the real world seems to point out that the gains from trade are not an obvious phenomenon in LDCs; more attention should therefore be devoted to the analysis of the (country-specific) reasons because of which such gains fail to materialize.

Furthermore, although trade policies are certainly useful in order to over- come the very sizeable market imperfections typical of most LDCs, it seems that in fact such policies also introduce inefficiencies, be it because of their very nature, be it because of the enforcement costs they entail. More country-specific work in this direction is badly with particular refemce to the interaction between trade policies, factor productivities and factor costs.

34. The importance of country-specific work can hardly be overestimated; failure to do so can lead to contradictory results, as pointed out in RANA [ 19881.

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ENRICO COLOMBATTO

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SUMMARY

It is often argued that LDC exports are too low, with a negative effect on growth and development. This paper focuses on the link between GDP and openness in 1971,1978 and 1985. It is found that such link was negligible overthe period considered: in fact, although openness in LDCs was often far from appropriate, deviations from the ‘expected’ level hardly had significant consequences on development.

On soutient souvent que le niveau des exportations des Pays en voie de d6veloppement est trop bas, avec des condquences ntgatives en teme de croissance. Cet article analyse le lien entre le PNB et l’ouverture commerciale en 1971,1978 et 1985. On conclut que ce lien a it6 t d s faible pendant la *node considede. En effet. meme si le degri d’ouveiture a Ctk presque toujours assez loins du niveau attendu. ces differences ont eu un effet presque negligeable sur le taux de aoissance des pays examints.

ZUSAMMENPASSLJNG

Oft behauptet man. dass der Expofl der Entwickiungslander ungeniigend ist, urn das gewiinschte Wachstum zu erlauben. Dieser Beitrag behandelt den Zusammenhang zwischen BIP und &fnung in den Jahren 1971,1978 und 1985. Es zeigt sich. dass ein solcher Zusammenhang iiberdieenvihnte Periode ganz schwach war: die Abweichungen von dem ‘erwarteten’ Niveau hatten nur geringe Einfliisse auf die Entwicklung derbetrachteten Liinder.

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An Analysis of Exports and Growth in LDCs

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