Effects of World Demand and Competitiveness on Exports and Economic Growth

ABSTRACT There is little consensus in the development literature on whether it is supply explanations such as competitiveness levels, or, the external demand structure which drive the link between exports and economic growth. This paper attempts to reconcile the polarization of the aforementioned viewpoints by examining the effects of both world demand and a country's competitiveness in exports on the relationship between export growth and economic growth. The results indicate that only developing countries which are highly competitive and which also face relatively favorable external demand for their exports experience above-average growth. Weak external demand reduces the positive effects of exports on growth substantially but may be offset by high levels of competitiveness in trade. The results imply that both regional and Third World growth studies on the link between exports and economic growth would profit more from integrating both supply as well as external demand explanations rather than succumb to one of the two viewpoints.