Export-led growth

The Washington Consensus dismissed exports as an important focus of economic growth strategies. According to its principles, if countries unified exchange rates, reduced barriers to trade, and brought inflation under control, exports would adjust to their efficient level. Today, many countries have followed these precepts, and yet, the median country has not narrowed its income gap with the United States. Export performance matters for growth, with countries that grow exhibiting more than proportional export growth. In many developing and emerging economies, growth is highly correlated with exogenous movements in their export prices and on fluctuations in international capital flows. Moreover, sustained fast-growing economies change the composition of their export basket substantially towards new, more complex products. This chapter argues that a focus on exports, both at the intensive margin, but especially at the extensive margin, can help countries figure out what policies to adopt in order to achieve sustained growth. It highlights the critical role that technology adoption plays for long-term growth, but also the market failures that make the proverbial invisible hand of the market inefficient. The implication of this analysis is not a new list of fixed policies that all countries should adopt, as the way Washington Consensus intended. Instead, it is an organised and costly search process for growth opportunities, both at the intensive and extensive margins of production.