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Trade-led Growth

A Sound Strategy for Asia

image of Trade-led Growth
The global economic crisis triggered changes in real economies and trade in all countries, including those in Asia, which adopted the so-called export-led growth model. With these drastic changes in trade flows, and the need to counteract potential adverse effects, the old debate on the advantages and flaws of the export-led model has re-opened. It aims to provide some theoretical and empirical reasons towards an argument that for developing Asian economies, export-led growth is still a valid model of stable, equitable and sustainable growth. It also combines local research with that of established ones. While there is extensive literature focusing on the role of openness and trade in a country’s development, much of it dates to before the most recent global crisis. Volumes that were recently published argue against an export-led growth strategy, while this volume argues in defence of trade-led growth for the Asian region.

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A trade theory explanation of global imbalances

There has been concern for many years over the large and growing trade imbalances of various countries in the world economy. This has led to calls for “global rebalancing” in which countries with persistent trade deficits, such as the United States, would reduce net imports while countries with persistent trade surpluses, such as China, would reduce net exports. This issue has become associated with concerns about the managed exchange rates of China and other economies as well as budget imbalances of the United States and other economies. The purpose of this chapter is to look at global imbalances from the perspective that a trade theorist would take to global trade. The issue is whether trade imbalances are necessarily harmful to global welfare and, therefore, a sign that policies are needed to correct them.

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