ExtensiveandIntensiveMarginGrowthandDevelopingCountryExports.docVIP

Extensive and Intensive Margin Growth and Developing Country Exports Cong Pham and Will Martin DECRG World Bank Wednesday, March 14, 2007 Extensive and Intensive Margin Growth and Developing Country Exports A key concern for development economists has been the risk that increasing exports will depress the terms of trade, and hence make rapidly-growing economies worse off—or at least severely diminish the gains from trade. In earlier decades, this trade pessimism was widely regarded as a sufficiently serious problem as to lead to developing countries to focus on import substitution as a path to growth. In more recent decades, an export-oriented approach has been widely seen as a more promising approach to growth. These two different perspectives have pervasive effects on the appropriate approach to economic development, and on the role of international agencies, particularly the World Bank, but also agencies such as the World Trade Organization (WTO). They determine, for instance, whether the World Bank should encourage and support import-substituting industrialization projects, or adopt the more recently-favored paradigm of a relatively open economic policy using exports as an engine of growth. While the answer to this question was assumed to be known during the era of the Washington consensus, it seems less clear-cut in today’s era that has been characterized as one of Washington confusion (Rodrik 2006). One possible escape route from trade pessimism is the possibility that export growth does not consist solely of expansion in the quantities of the same goods. If, instead, export growth comes in large measure through expansion in the number of range of products exported, the outcome of export growth may be much more optimistic. Some recent studies have suggested that export growth may involve substantial increases in the range of varieties exported. This extensive margin growth may-- particularly if consumers prefer a wider variety of imports—help offset the