Instability and growth in trade

An earlier chapter contained an account of the growth of merchandise exports of developing countries in the ESCAP region. One feature of that growth path is a discernible slow-down in the rate of growth of export earnings during the late 1970s and early 1980s. It is widely recognized that sluggish growth in export earnings, through a variety of direct and indirect means, severely constrains the potential for economic growth in a majority of developing economies. This constitutes the fundamental basis of two-gap theories of development. Briefly, the theory implies that in many developing countries, the ex ante savings may be frustrated and fail to fructify in investment because of a shortage of foreign exchange to finance the import of investment goods. Import capacity may thus emerge as the binding constraint on accelerated growth. Quite obviously, the constraint can be relaxed by resort to external finance. However, severe limits on access to capital markets and adverse consequences of large-scale borrowing, as amply demonstrated by the recent debt problems of many developing countries, especially in Latin America, dictate judicious restraint. Hence the need for sustained growth in export earnings.

Sustainable Development Goals:

Decent Work and Economic Growth

Reduced Inequalities