This paper has examined the relationship between the rate of economic growth in the non-oil developing countries and that in industrial countries, with the intention of appraising the effects of slower industrial country growth on the non-oil developing countries during 1973—80. At the risk of oversimplifying the arguments and the evidence examined in the preceding sections, the principal conclusions emerging from our analysis can be summarized as follows:
(1) There is a difference between saying that the rate of economic growth in industrial countries has an important and positive effect on the rate of economic growth in non-oil developing countries and saying that the former’s growth rate is the overriding determinant of the latter’s growth rate. The first proposition is true; the second is not.
There is evidence that slower (faster) industrial country growth rates are associated, ceteris paribus, with slower (faster) non-oil developing country growth rates, particularly via the effect of real income growth in industrial countries on the growth of non-oil developing countries’ exports. But there are also clear indications that a host of other factors strongly affect non-oil developing country growth as well, including, inter alia, the commodity composition and relative competitive position of their exports, the existing tariff and nontariff barriers to trade with industrial countries, the share of non-oil developing countries’ exports going to industrial countries, the scope of demand and production linkages between the export and domestic sectors in non-oil developing countries, the availability and cost of external finance to them, the flow of migrants’ remittances to the non-oil developing countries, the cost of their imported inputs (particularly oil), the quantity and quality of human and physical capital, and the stance and general orientation of their economic policies.
In sum, the rate of economic growth in industrial countries sets broad limits on the range of feasible growth rates in non-oil developing countries but the actual growth rates achieved by individual non-oil developing countries, or groups of them, would seem to be the outcome of other factors, including their economic policies and those of other groups of countries (e.g., the recycling of the surpluses of oil exporting countries).
(2) During periods when other growth-inducing factors act to offset, or to partially compensate for, the effect of slower industrial country growth, the observed link between industrial country growth rates and non-oil developing country growth rates will be weak, even though the independent effect of the former’s growth on the growth of the latter may be quite strong. A good illustration of this is the rather modest decline in the average non-oil developing country growth rate (of real GNP) from 5.8 per cent per annum in 1968–72 to 5.2 per cent in 1973–80, in the face of a much sharper decline (from 4.5 per cent per annum in 1968–72 to 3.1 per cent in 1973–80) in average industrial country growth. This apparent resiliency of non-oil developing country growth was attributable not to the absence of a significant adverse industrial country income effect but rather to the compensations that were made for it by the non-oil developing countries, oil exporting countries, multilateral financial institutions, and by industrial countries themselves. These compensations took the form, among others, of an increased (volume) share of non-oil developing countries in total imports into industrial countries; a rerouting of some non-oil developing country exports to faster growing import markets; a continuous increase in the share of high-income elasticity products (i.e., manufactures) in their total exports; tariff preferences for developing countries in industrial country markets (e.g., the GSP); an increased availability of external finance to non-oil developing countries at attractive real interest rates and an increased flow of migrants’ remittances—both of which enabled these countries to support import growth and investment rates at higher levels than would otherwise have been possible; and a reorientation, in some non-oil developing countries, of economic policies that contributed to higher agricultural production, higher export supply, and higher overall economic efficiency. By the same token, prospects for non-oil developing country growth in the medium and long term depend not only on the likely pace of growth in industrial countries but also on the scope, strength, and durability of the compensative actions that can be taken if industrial country growth turns out to be slower than desirable. For this reason, projection and scenario exercises for non-oil developing country growth need to pay particular attention to these potential compensative factors. Failure to do so could clearly result in overestimating the impact of slower industrial country growth on non-oil developing countries.
(3) Statements about the impact of slower industrial country growth on non-oil developing countries can be misleading because of the striking differences of this impact across the different subgroups of non-oil developing countries. Specifically, on the basis of some simple reduced-form tests, it was found that the rate of industrial country growth had the greatest impact on domestic growth rates in middle-income oil importing countries, that is, for major exporters of manufactures and for other net oil importers. In the case of the other two analytical subgroups, namely net oil exporters and low-income countries, this relationship was much weaker.87 This lower sensitivity to industrial country real income growth by the latter two subgroups of non-oil developing countries cannot be traced to a single factor but seems to be explainable in terms of (a) the low share of exports in GNP (at least for low-income countries); (b) the importance of terms-of-trade changes relative to export volume changes over the 1973–80 period; (c) the higher proportion of primary commodities in total exports (with the attendant greater frequency of supply shocks relative to industrial country income-induced demand shocks); (d) the higher share of agriculture in GDP (in low-income countries) with the associated vulnerability of agricultural production to local or regional exogenous events (e.g., droughts); (e) the lack of complementary factors (e.g., infrastructure, financial markets) to translate an increase in export earnings into higher growth; and (f) the significant share of foreign exchange receipts that originated outside the industrial countries over the 1973–80 period (e.g., migrants’ remittances from oil exporting countries).
This greater sensitivity of economic growth in middle-income oil-importing developing countries to industrial country growth implies, of course, that they will be most vulnerable to a slowdown in growth in industrial countries. Consistent with this proposition, it was noted that major exporters of manufactures and other net oil importers displayed the largest declines in real GNP growth rates between 1968–72 and 1973–80 (i.e., 2.3 percentage points and 1.0 percentage point per annum, respectively). In contrast, the average annual growth rates for low-income countries and for net oil exporters were both marginally higher in the later slow industrial country growth period. But it is equally important to note that the middle-income oil importing developing countries also displayed relatively high levels of economic growth in both periods, and there are good reasons for believing that this superior growth performance was in part attributable to their more outward-looking economic structure and economic policies. Even though their vulnerability to sharp changes in industrial country growth rates is greater than in more inward-looking, low-income non-oil developing countries, the former’s vulnerability to other types of external shocks is probably lower. For example, as noted in several World Bank studies, when imports already compete with a wide range of domestically produced goods, import growth can be reduced in the wake of a payments crisis without eliminating many crucial imports; as such, the repercussions on growth are likely to be smaller.
In short, a relatively high degree of integration with the world economy carries both benefits and costs. Relatively high sensitivity of domestic growth with respect to industrial country growth is beneficial when industrial countries grow rapidly and costly when they grow slowly. However, the gains from trade extend far beyond the direct income effect associated with changes in the rate of export growth, and these other gains are not likely to be forthcoming unless a country maintains a consistent outward-looking policy. Turning inward as a response to projected slow industrial country growth rates might reduce the short-run fluctuation in non-oil developing country growth rates but would also likely reduce the medium-term level of their growth.
(4) Examination of the sublinks that lie beneath the reduced-form relationship between industrial country growth rates and non-oil developing country growth rates suggests that the link between real income growth in the former and export growth of the latter is considerably stronger and quicker than that between the non-oil developing countries’ export growth and real income growth. For all non-oil developing countries, a consensus estimate of the former elasticity might be on the order of 1.3 whereas the latter is closer to 0.1. In other words, industrial country real income growth is considerably more important relative to other factors in explaining non-oil developing countries’ exports than it is in explaining their real income growth.
This analysis of the association between real income growth in the industrial countries and export volume growth of the non-oil developing countries showed that a slowdown in the former’s economic growth typically produced a rapid and larger than proportionate slowdown in their total import growth as well. During the 1973–80 period, however, there were two factors that helped to minimize the consequences on non-oil developing countries’ exports of this slower growth of industrial countries’ imports, albeit primarily for those non-oil developing countries with higher shares of manufactures in their total exports. One was that the (implied) income elasticity for industrial countries’ imports from the non-oil developing countries was larger than that for their total imports, so that non-oil developing countries captured a larger part of the industrial countries’ slow-growing import volume. Since econometric studies reveal that the demand in industrial countries for manufactured imports from non-oil developing countries is quite price elastic, an implication follows that favorable relative price performance by the non-oil developing countries aided in this increased market share. The contribution of tariff preferences to the non-oil developing countries is more difficult to evaluate; they probably spurred exports of non-oil developing countries but less so than would have a larger reduction in average industrial country tariffs on a most-favored-nation basis. A second factor was that non-oil developing countries were able to increase their total exports (in volume terms) faster than their exports to industrial countries over the 1973–80 period by sending a larger share of their exports to oil exporting countries and to other non-oil developing countries—both of which increased their total imports and their imports from non-oil developing countries faster than did the industrial countries. Behind the long-term increase in the share of manufactures in total non-oil developing countries’ exports was the increasing importance of trade among the non-oil developing countries themselves as an outlet for their exports of primary commodities.
Turning to the association between export growth and real GNP growth in non-oil developing countries, the authors, like earlier investigators, were able to identify only a weak positive relationship. We also found that this relationship or elasticity was: (i) small relative to those for growth of the labor force and growth of capital; (ii) significant only for major exporters of manufactures and other net oil importers;88 and (iii) stronger over longer time periods than for year-to-year changes or for three-year moving averages of the year-to-year changes. Put in other words, export growth is a positive source of economic growth in non-oil developing countries, but it is not as important as other traditional and primarily domestic sources of growth; it seems to make the strongest contribution to growth once countries reach some minimum stage of development; and it is sustained export growth rather than short-run fluctuations that exerts the greatest influence on the growth process.
In examining the growth experience of non-oil developing countries during 1973—80, four factors were identified that helped to protect real GNP growth in the face of a harsh external environment characterized by low industrial country growth rates, high global inflation rates, and large oil price increases.
(a) First, there was a significant increase in the flow of migrants’ remittances into non-oil developing countries, particularly into those in the low-income subgroup. By the late 1970s, these remittances amounted to 20–50 per cent of merchandise exports in quite a few of the labor exporting countries. We also found that while migrants’ remittances were quite sensitive to the level of and change in real economic activity in the host country, a slowdown in industrial country growth affects only a limited number of the non-oil developing countries receiving the remittances because many of them received their remittances from oil exporting countries or other non-oil developing countries.
(b) A second mitigating factor was the increased availability of external finance to non-oil developing countries, and at real interest rates that were negative (relative to the increase in their export prices) until 1981. For the low-income subgroup, the bulk of this finance came from official sources while for the middle-income non-oil developing countries it derived from the private sector. This external financing, in turn, permitted higher growth rates of imports and of investment in non-oil developing countries than would otherwise have been possible.
(c) A third factor weakening the link between non-oil developing country growth and industrial country growth was the substantial share of agriculture in GDP, especially for the low-income subgroup. Since agricultural production depends mainly on factors other than industrial country real growth, a substantial share of GDP is likewise only weakly related to real growth rates in industrial countries. In those non-oil developing countries where policies toward agriculture promoted favorable relative incentives and provided for significant investment in complementary inputs, agricultural production did well; the converse was true for those non-oil developing countries that neglected agriculture in their development policies. Still, partly as the result of exogenous, uncontrollable factors (e.g., droughts), agriculture showed slower growth in non-oil developing countries over 1970–80 than did either industry or services, and hence slowed overall growth in those countries during 1973–80.
(d) Fourth, it was observed that the growth performance of non-oil developing countries was strongly affected by the orientation and quality of their own economic policies. Specifically, outward-looking development strategies (as characterized by, inter alia, provision of similar incentives for domestic and export production, realistic real exchange rates and public utility prices, tolerance of wide-ranging import competition for domestically produced goods, and the operation of an automatic and stable incentive system) produced better results for economic growth and for adjustment to external shocks than did inward-looking strategies.
(5) Finally, the findings about the changing strength of the growth linkage between the industrial countries and the non-oil developing countries as one moves from the 1960s to the 1970s should be considered preliminary in view of the limited number of subperiod observations. Nevertheless, there were persistent indications that industrial country growth rates had a stronger impact on non-oil developing country growth rates in 1973–80 than in 1965–72, and this for both the underlying link between industrial country real income and non-oil developing country exports and that between non-oil developing country exports and their real income. It appears that this greater sensitivity to industrial country growth in the later period is traceable to changes in the structure of production and exports which have been gradually taking place in non-oil developing countries over at least the last two decades. Specifically, the large long-term increase in the share of manufactures in their exports is probably at the heart of this heightened sensitivity—both because of the higher income elasticity for manufactured exports and because of the larger growth spinoffs that are thought to derive from exports of manufactures. Similarly, the long-term fall in the share of agriculture in real GNP in non-oil developing countries has reduced the influence of the most indigenous growth sector, and this has not been offset by any appreciable rise in the share of the other (relatively) indigenous or nontradable sector.
References
Anjaria, S.J., Z. Iqbal, L.L. Perez, and W.S. Tseng, Trade Policy Developments in Industrial Countries, International Monetary Fund, Occasional Paper No. 5 (Washington, July 1981).
Artus, Jacques R., and John H. Young, “Fixed and Flexible Exchange Rates: A Renewal of the Debate,” International Monetary Fund, Staff Papers, Vol. 26 (December 1979), pp. 654 –98.
Balassa, Bela, “Exports and Economic Growth: Further Evidence,” Journal of Development Economics, Vol. 5 (June 1978), pp. 181 –89.
Balassa, Bela, “The Process of Industrial Development and Alternative Development Strategies,” Essays in International Finance, No. 141, International Finance Section, Princeton University (December 1980).
Baldwin, R.E., and T. Murray, “MFN Tariff Reductions and Developing Country Trade Benefits under the GSP,” Economic Journal, Vol. 87 (March 1977), pp. 30 –46.
Barker, T.S., “Aggregation Error and Estimates of the U.K. Import Demand Function,” in K. Hilton and D. Heath-field, eds., The Econometric Study of the United Kingdom (New York, 1970), pp. 115 –45.
Bhagwati, Jagdish N., and T.N. Srinivasan, “Trade Policy and Development,” in Rudiger Dornbusch and Jacob A. Frenkel, eds., International Economic Policy (Baltimore, 1979), pp. 1 –38.
Birdsall, Nancy, “Population and Poverty in the Developing World,” World Bank Staff Working Paper No. 404 (Washington, July 1980).
Cagan, Phillip, “The Reduction of Inflation by Slack Demand,” in William Fellner, ed., Contemporary Economic Problems, 1978, American Enterprise Institute for Public Policy Research (Washington, 1978).
Chenery, Hollis B., Hazel Elkington, Christopher Sims, A Uniform Analysis of Development Patterns, Harvard University Center for International Affairs, Economic Development Report No. 148 (July 1970).
Cline, William R., World Inflation and the Developing Countries, The Brookings Institution (Washington, 1981).
Cline, William R., Noboru Kawanae, T.O.M. Kronsjö, and Thomas Williams, Trade Negotiations in the Toyko Round: A Quantitative Assessment, The Brookings Institution (Washington, 1978).
Colaço, Francis X., “The International Economic Environment and the Developing Countries, 1960-90,” World Bank Division Working Paper. Draft (1980-6) (Washington, July 1980).
Deppler, Michael C., and Duncan M. Ripley, “The World Trade Model: Merchandise Trade,” International Monetary Fund, Staff Papers, Vol. 25 (March 1978), pp. 147 –206.
Fellner, William, “The Core of the Controversy about Reducing Inflation: An Introductory Analysis,” in William Fellner, ed., Contemporary Economic Problems, 1978, American Enterprise Institute for Public Policy Research (Washington, 1978).
Frank, Isaiah, “Trade Policy Issues for the Developing Countries in the 1980s,” World Bank Staff Working Paper No. 478 (Washington, August 1981).
Goldstein, Morris, “Have Flexible Exchange Rates Handi-capped Macroeconomic Policy?” Special Papers in Inter-national Economics, No. 14, International Finance Section, Princeton University (June 1980).
Goldstein, Morris,, and Mohsin S. Khan, “Income and Price Effects in Foreign Trade,” Chapter 20 in Ronald Jones and Peter Kenen, eds., Handbook of International Economics (North-Holland Publishing Co., forthcoming).
Goreux, Louis M., Compensatory Financing Facility, IMF Pamphlet Series, No. 34 (Washington, 1980).
Grossman, Gene M., “Import Competition from Developed and Developing Countries,” unpublished, Princeton University (May 1981).
Havrylyshyn, Oli, and Martin Wolf, “Trade Among Developing Countries: Theory, Policy Issues, and Principal Trends,” World Bank Staff Working Paper No. 479 (Washington, August 1981).
Hicks, Norman L., Economic Growth and Human Resources, World Bank Staff Working Paper No. 408 (Washington, July 1980).
Hicks, Norman L.,, and others,“A Model of Trade and Growth for the Developing World,” European Economic Review, Vol. 7 (April 1976).
Hirschman, Albert O., “A Generalized Linkage Approach to Development with Special Reference to Staples,” in Manning Nash, ed., Essays on Economic Development and Cultural Change (Chicago, 1977).
Hughes, Helen, “Inter-Developing Country Trade and Employment,” in Austin Robinson, ed., Trade and Employment, Proceedings of the Sixth Congress of the International Economic Association, Mexico City, 1980 (Macmillan, forthcoming).
International Bank for Reconstruction and Development (the World Bank), World Development Report 1981 (Washington, August 1981).
International Monetary Fund, World Economic Outlook: A Survey by the Staff of the International Monetary Fund, Occasional Paper No. 4 (Washington, June 1981).
International Monetary Fund, “Exchange Rate Policies in Developing Countries,” unpublished (January 1982).,
International Monetary Fund, World Economic Outlook: A Survey by the Staff of the International Monetary Fund, Occasional Paper No. 9 (Washington, April 1982).
Iqbal, Zubair, “Trade Effects of the Generalized System of Preferences,” Pakistan Development Review, Vol. 15 (Spring 1976), pp. 64 –89.
Keesing, D., “Trade Policy for Developing Countries,” World Bank Staff Working Paper No. 353 (Washington, August 1979).
Khan, Mohsin S., “Import and Export Demand in Developing Countries,” International Monetary Fund, Staff Papers, Vol. 21 (November 1974), pp. 678 –93.
Krishnamurty, K., and Ke-young Chu, “Export Earnings of Primary Commodity Exporting Countries and Business Cycles in Industrial Countries” (unpublished, International Monetary Fund, July 1977).
Krueger, Anne O., “Alternative Trade Strategies and Employment in LDCs,” American Economic Review, Vol. 68 (May 1978), pp. 270 89.
Lewis, W. Arthur “The Slowing Down of the Engine of Growth,” American Economic Review, Vol. 70 (September 1980), pp. 555 –64.
Magee, Stephen P., “Prices, Incomes, and Foreign Trade,” in Peter B. Kenen, ed., International Trade and Finance, (Cambridge University Press, 1975), pp. 175 252.
Maizels, Alfred, Exports and Economic Growth of Developing Countries (Cambridge University Press, 1968).
McKinnon, R.I., “The Order of Economic Liberalization: Lessons from Chile and Argentina,” unpublished, Stan-ford University (October 1981).
Michaely, Michael, “Exports and Growth: An Empirical Investigation,” Journal of Development Economics, Vol. 4 (March 1977), pp. 49 –53.
Michalopoulos, Constantine, and Keith Jay, Growth of Ex-ports and Income in the Developing World: A Neo-classical View, Agency for International Development Discussion Paper No. 28 (Washington, November 1973).
Modigliani, Franco Lucas Papademos, “Optimal Demand Policies Against Stagflation,” Weltwirtschaftliches Archiv, Band 114, Heft 4 (1978) pp. 736 –82.
Murray, T., Trade Preferences for Developing Countries, Macmillan (London, 1977).
Nowzad, Bahram, The Rise in Protectionism, IMF Pamphlet Series, No. 24 (Washington, 1978).
Okun, Arthur M., “Efficient Disinflationary Policies,” American Economic Review, Vol. 68 (May 1978), pp. 348 52.
Rhomberg, Rudolf R., “Transmission of Business Fluctuations from Developed to Developing Countries,” International Monetary Fund, Staff Papers, Vol. 15 (March 1968), pp. 1 –29.
Robinson, Sherman, “Sources of Growth in Less Developed Countries: A Cross-Section Study,” Quarterly Journal of Economics, Vol. 85 (August 1971), pp. 391 –408.
Spitäller, Erich “A Model of Inflation and Its Performance in the Seven Main Industrial Countries, 1958-76,” International Monetary Fund, Staff Papers, Vol. 25 (June 1978), pp. 254 –77.
Stein, Leslie, “The Growth and Implications of LDC Manufactured Exports to Advanced Countries,” Kyklos, Vol. 34, Fasc. 1 (1981), pp. 36 –59.
Stern, R., J. Francis, and B. Schumacher, Price Elasticities in International Trade: An Annotated Bibliography, Macmillan (New York, 1976).
Swamy, Gurushri “Remittances of Migrant Workers: Issues and Prospects.” World Bank Division Working Paper. Draft (1981-3) (Washington, March 1981).
Thirlwall, A.P., “The Balance of Payments Constraint as an Explanation of International Growth Rate Differences,” Banca Nazionale del Lavoro Quarterly Review (March 1979), pp. 45 53.
Tyler, William G., “Growth and Export Expansion in Developing Countries: Some Empirical Evidence,” Journal of Development Economics, Vol. 9 (August 1981), pp. 121 –30.
Appendix Classification of Countries
The classification of countries in this study is the one adopted by the Fund in December 1979 and utilized in both International Financial Statistics and the World Economic Outlook (1981).
Industrial countries comprise
| Australia | Germany, Fed. Rep. | New Zealand |
| Austria | Iceland | Norway |
| Belgium | Ireland | Spam |
| Canada | Italy | Sweden |
| Denmark | Japan | Switzerland |
| Finland | Luxembourg | United Kingdom |
| Franpp | Netherlands | United States |
| Australia | Germany, Fed. Rep. | New Zealand |
| Austria | Iceland | Norway |
| Belgium | Ireland | Spam |
| Canada | Italy | Sweden |
| Denmark | Japan | Switzerland |
| Finland | Luxembourg | United Kingdom |
| Franpp | Netherlands | United States |
The developing countries are divided into two groups—“oil exporting countries” and “non-oil developing countries.” The countries under the heading oil exporting countries1 are
| Algeria | Kuwait | Qatar |
| Indonesia | Libya | Saudi Arabia |
| Iran | Nigeria | United Arab Emirates |
| Iraq | Oman | Venezuela |
| Algeria | Kuwait | Qatar |
| Indonesia | Libya | Saudi Arabia |
| Iran | Nigeria | United Arab Emirates |
| Iraq | Oman | Venezuela |
The other developing countries, or non-oil developing countries, include all Fund members except those listed above as being “industrial countries” or “oil exporting countries,” together with certain essentially autonomous dependent territories for which adequate statistics are available.2 Where regional breakdowns of data for non-oil developing countries are shown, the subgroups conform to the regional classification used in IFS.
Throughout the study, four analytical subgroups of non-oil developing countries are also distinguished. These subgroupings are based primarily on the character of the country’s economic activity and the predominant composition of its exports. Since the large “non-oil” group in the basic classification includes some countries that do have significant production and/or exports of oil, one of the analytic subgroups shown separately comprises countries (outside the main oil exporting group mentioned above) whose oil exports exceeded their oil imports in most years of the 1970s.
The countries classified in the subgroup net oil exporters are
| Bahrain | Egypt | Peru |
| Bolivia | Gabon | Syrian Arab Republic |
| Congo, People’s | Malaysia | Trinidad and Tobago |
| Republic of the | Mexico | Tunisia |
| Ecuador |
| Bahrain | Egypt | Peru |
| Bolivia | Gabon | Syrian Arab Republic |
| Congo, People’s | Malaysia | Trinidad and Tobago |
| Republic of the | Mexico | Tunisia |
| Ecuador |
Within the great majority of developing countries that are net importers of oil, three subgroups are distin-gashed. The first is major exporters of manufactures including
| Argentina | Israel | Singapore |
| Brazil | Korea | South Africa |
| Greece | Portugal | Yugoslavia |
| Hong Kong |
| Argentina | Israel | Singapore |
| Brazil | Korea | South Africa |
| Greece | Portugal | Yugoslavia |
| Hong Kong |
A second subgroup is the low-income countries, comprising 40 countries whose per capita GDP, as estimated by the World Bank, did not exceed the equivalent of $350 in 1978. These are
| Afghanistan | Guinea-Bissau | Niger |
| Bangladesh | Haiti | Pakistan |
| Benin | India | Rwanda |
| Burma | Democratic | Senegal |
| Burundi | Kampuchea | Sierra Leone |
| Cape Verde | Kenya | Somalia |
| Central African | Lao People’s | Sri Lanka |
| Republic | Democratic Republic | Sudan |
| Chad | Lesotho | Tanzania |
| China, People’s | Madagascar | Togo |
| Republic of3 | Malawi | Uganda |
| Comoros | Maldives | Upper Volta |
| Ethiopia | Mali | Viet Nam |
| The Gambia | Mauritania | Zaire |
| Guinea | Nepal |
| Afghanistan | Guinea-Bissau | Niger |
| Bangladesh | Haiti | Pakistan |
| Benin | India | Rwanda |
| Burma | Democratic | Senegal |
| Burundi | Kampuchea | Sierra Leone |
| Cape Verde | Kenya | Somalia |
| Central African | Lao People’s | Sri Lanka |
| Republic | Democratic Republic | Sudan |
| Chad | Lesotho | Tanzania |
| China, People’s | Madagascar | Togo |
| Republic of3 | Malawi | Uganda |
| Comoros | Maldives | Upper Volta |
| Ethiopia | Mali | Viet Nam |
| The Gambia | Mauritania | Zaire |
| Guinea | Nepal |
The third subgroup, other net oil importers, comprise middle-income countries (according to the World Bank’s estimates) that, in general, export mainly primary commodities. The countries in this subgroup comprise all non-oil developing countries that are not included among “net oil exporters,” “major exporters of manufactures,” or “low-income countries.”
Sir Arthur Lewis (1980), p. 555.
The country composition of the classifications “industrial coun tries” and “non-oil developing countries,” as well as of the four subgroups of non-oil developing countries (i.e., net oil exporters, major exporters of manufactures, other net oil importers, and low-income countries) is presented in the Appendix to this paper.
The developing countries classified by the International Monetary Fund’s International Financial Statistics (IFS) and the World Economic Outlook, a survey by the staff of the International Monetary Fund, Occasional Paper No.4, June 1981 (hereinafter referred to as IMF, World Economic Outlook (1981)) as “oil exporting countries” are not considered in this paper because their real growth performance and external payments position have been more favorable than those of other developing countries since 1973 and because the large relative role of oil in their economies gives rise to some rather distinct development problems.
Such scenarios for non-oil developing country growth are contained, for example, in IMF, World Economic Outlook (1981) and in the International Bank for Reconstruction and Development (World Bank), World Development Report 1981 (hereinafter referred to as World Bank, World Development Report 1981).
The same long-term decline in industrial countries’ real growth rates is also apparent if one compares the 1960s to the 1970s.
See IMF, World Economic Outlook, Occasional Paper No. 9, April 1982.
See IMF, World Economic Outlook (1981).
See World Bank, World Development Report 1981.
Net oil-importing developing countries include all non-oil developing countries except those in the net oil exporters subgroup.
See Birdsall (1980). For example, note that the average annual growth of population over the 1970–79 period was 2.1 per cent for low-income developing countries versus 0.7 per cent for the industrial market economies. See Table 17, World Bank, World Development Report 1981, pp. 166–67.
See, for example, Table 2.10 in World Bank, World Development Report 1981, p. 18.
See Colaço (1980), Table 14, p. 35.
The differences are rather small for the industrial countries (called “industrial market economies” in the Bank) and for the low-income non-oil developing country subgroup (called “low-income developing countries” in the Bank), but are significant for other country group classifications where World Bank classifications either combine several Fund subgroups (e.g., middle-income oil importers includes the Fund subgroups of major exporters of manufactures and other net oil importers) or are more narrowly defined (e.g., capital-surplus oil exporters includes just 4 of the 12 countries called oil exporting countries in the Fund).
Data for China were unavailable before 1976. China is therefore excluded from this study.
See, for example, Magee (1975), Stern et al. (1976), Goldstein (1980), and Goldstein and Khan (forthcoming).
“Implied” income elasticity refers to the ratio of import volume changes to real income changes. In contrast, the “true” income elasticity, as revealed by econometric studies, estimates the effect of real income changes on import volumes after other factors affecting the volume of imports, in particular relative price changes, have been held constant.
See Artus and Young (1979) and Goldstein and Khan (forthcoming).
The figures are based on data for 14 (largest) rather than 20 industrial countries, but the results for 20 countries would undoubtedly be similar.
Colaço (1980) reports that manufactures (including finished and semimanufactured goods) accounted for 39 per cent of the merchandise exports of oil importing developing countries in 1978 versus 14 per cent in 1963.
The implied income elasticity for industrial countries’ total imports is 1.8 for 1962–67, 2.2 for 1968–72, and 1.6 for 1973–80 (excluding 1975 and 1980). These elasticities are averages of yearly elasticities rather than elasticities calculated from the period average figures.
Industrial countries accounted for 66 per cent of world imports in 1980.
The real price is the index of nominal commodity prices divided by the United Nations index of the prices of manufactures exported by the industrial countries.
After 1975, primary commodity prices (excluding oil) rose briskly in 1976 and 1977, fell sharply in 1978, and then rose moderately in 1979 and 1980.
See also Krishnamurty and Chu (1977).
Along similar lines, Tables 13 and 14 in IMF, World Economic Outlook (1981) reveal that the deterioration in the oil trade balance of net oil importing developing countries was $12.7 billion between 1973 and 1975 (versus a $27.6 billion deterioration in this group’s current account balance) and $40.5 billion between 1978 and 1980 (versus a $40.3 billion deterioration in the current account).
The average unemployment rate in the seven largest industrial countries in 1973–80 was 5.0 per cent compared with 3.0 per cent in 1963–72. See IMF, World Economic Outlook (1981), Table 5, p. 114.
World Bank, World Development Report 1981, p. 28.
The trade measures themselves have taken a wide variety of forms, including the Multifiber Arrangement, antidumping and countervailing duties, trigger price mechanisms, and safeguard provisions. See World Bank, World Development Report 1981.
In 1980, industrial countries took 62 per cent of all non-oil developing countries’ exports. See Table 12, p. 17.
The following argument assumes that non-oil developing countries do not alter their exchange rates.
It is well to recall that while real GNP growth rates in industrial countries were much lower in 1973–80 than in 1968–72 (3.1 per cent versus 4.5 per cent), average inflation rates in those countries were twice as high (8.9 per cent versus 4.4 per cent).
What is needed to explain changes in import shares in the markets of industrial countries are changes in the prices of non-oil developing countries’ exports from the non-oil developing countries going to the industrial countries. Unfortunately, data are only available on total non-oil developing countries’ export prices. To the extent that the commodity composition of non-oil developing countries’ exports differs significantly across their export markets, the two export price series could also differ substantially.
The data in Table 9 cover 14 industrial countries rather than the 20 industrial countries normally subsumed under the Fund category “industrial countries.” Nevertheless, the data in Table 9 cover the largest industrial countries and behave very similarly to the data for the 20 countries, at least as regards changes in total imports into industrial countries over time.
Because the middle-income oil exporters contain 8 countries that belong to the Fund subgroup oil exporting countries, it is clear that the proportion of fuels, minerals, and metals given in Table 10 would be considerably higher than that for Fund group net oil exporters.
These figures are from IMF, World Economic Outlook (1981), Table 11, pp. 118–19. Table 11 also contains detailed data on export volume growth for all non-oil developing countries and for relevant analytical and regional subgroups.
Stein (1981) also cites the growing competitiveness of developing countries as an important factor in their increasing share of total industrial country imports of manufactures during the 1963–76 period, with unusually large market-share gains recorded in the clothing and engineering goods categories. In 1963, developing countries had a 6.1 per cent share of the value of all industrial countries’ imports of manufactures; by 1976, this share had grown to 8.7 per cent (see Stein (1981), Table 2).
This subsection draws rather heavily on the discussion of tariff preferences for developing countries in Stein (1981) and the World Bank, World Development Report 1981.
The developing countries’ share of industrial countries’ manufactured imports increased from 6.3 per cent in 1960 to 6.7 per cent in 1970, while their share of total world trade in manufactures increased from 5.6 per cent to 6.6 per cent during the same period.
See Murray (1977).
See Table 10, World Bank, World Development Report 1981, pp. 152–53.
See Havrylyshyn and Wolf (1981), Table 5, p. 52.
Trade among the non-oil developing countries in manufactures and trade in primary commodities are, of course, not independent of one another. For example, a rapid expansion of their manufacturing capacity is likely to induce an increase in import demand for metals and minerals, some of which would presumably be supplied by other non-oil developing countries.
The members of this subgroup are Argentina, Brazil. Greece, Hong Kong, Israel, Korea, Mexico, Portugal, Singapore, Spain, and Yugoslavia.
The major exporters of manufactures are Argentina, Brazil, Greece, Hong Kong, Israel, Korea. Portugal, Singapore, South Africa, and Yugoslavia. The Fund classifies Spain among the industrial countries and Mexico in the net oil exporters category.
See Havrylyshyn and Wolf (1981), Table 11, p. 62. Manufactured goods do not appear on the list of principal products because the product classifications are finely drawn. As a group, however, manufactures represented about one half of all intra-non-oil developing country trade in 1977.
Adjustment for separate cyclical and trend influences of industrial country real income added very little to the results.
Krishnamurty and Chu (1977) similarly found that elasticity of non-oil developing countries’ export volume with respect to the industrial country business cycle was, inter alia, inversely related to the share of food products in total non-oil developing country exports.
A useful summary of these benefits is also provided in Keesing (1979).
See Maizels (1968) for an early comprehensive description of this phenomenon.
In addition to the two linkages discussed here, there is also the fiscal linkage, that is, an increase in exports leads to a rise in government revenues, either via export taxes or via complete or partial government ownership of the export industries themselves. The fiscal linkage can be complementary to the production linkage if the revenues are invested, or to the demand linkage if the revenues are utilized for current expenditures.
Government savings would also be expected to rise with increased exports as additional tax revenues are generated.
See Thirlwall (1979) for empirical tests that are supportive of the hypothesis that the balance of payments constraint is an important factor in explaining international growth rate differences.
The typical assumption is that higher export growth induces higher economic growth. It is also plausible, however, that more rapid economic growth can increase a country’s export capacity and thereby induce more rapid export growth.
An earlier study by Chenery, Elkington, and Sims (1970) used a similar strategy but concluded that there was no evidence of any relationship—a result that Michaely (1977) attributes to the use of an incorrect measure of the growth of exports.
The data are taken from Michaely (1977), Table 1, p. 51.
The foreign exchange constraint variable is defined as the ratio of the current account balance to GNP.
Simply relating the two variables yielded a coefficient of 0.22, which is very close to the value of 0.23 calculated from the Michaely (1977) data.
It should be noted that the results for the low-income subgroup are quite sensitive to the inclusion of India as well as to the choice of time period. More work with this group is necessary before firm conclusions can be drawn on the export-income link.
See World Bank, World Development Report 1981, Table 5, pp. 142–43. However, when India is excluded from the low-income subgroup, the export share is almost identical to that for middle-income developing countries.
See World Economic Outlook (1981), Table 17, p. 125.
ibid.
Ibid., Table 25, p. 131. However, expressed as a ratio to the value of their imports, the international reserves of low-income countries fell in 1974, 1975, 1978, 1979, and 1980.
Ibid., Table 30, p. 135.
The reliance on private long-term capital was highest for net oil exporters and major exporters of manufactures. Also, this reliance was highest in the 1975–79 period, peaking at 43.6 per cent of all financing flows in 1979. See IMF, World Economic Outlook (1981), Tables 23 and 24, pp. 129–30.
World Economic Outlook, op. cit., reports that other net oil importers faced an average nominal interest rate of 5.5 per cent during 1974—79 versus an average increase of export prices of 15 per cent per annum. The corresponding figures for low-income countries were 2.5 per cent and 13 per cent, respectively; see p. 11.
In the case of major exporters of manufactures, the pre–1973 range of imports was probably substantial enough to permit some reduction in imports without curtailing those imports crucial for growth; see Balassa (1980).
World Bank, World Development Report 1981, p. 12.
Of course, if improvements in the quality of the labor force due to education, experience, and health are included, the growth of the labor input would have to be adjusted upward.
See World Bank, World Development Report 1981, Tables 4 and 19, pp. 140–41 and 170–71.
Note that agriculture’s share of GDP was much lower in 1979 than in 1960 in non-oil developing countries. The 1960 share for low-income non-oil developing countries was 51 per cent and for middle-income non-oil developing countries was 22 per cent.
In cases where non-oil developing countries import much of their fertilizer and other agricultural inputs, the connection between their growth and industrial country growth will of course be stronger than suggested above.
The same conclusion on agricultural supply responses to relative price signals in non-oil developing countries is reached by the International Monetary Fund in “Exchange Rate Policies in Developing Countries” (unpublished), January 1982.
Using consumer prices as the measure, the average rate of inflation in non-oil developing countries during 1973–80 was 27.8 per cent, versus 9.1 per cent for the 1968–72 period. The average ratio of the current account deficit to GNP for all non-oil developing countries was 3.1 per cent for 1973–80 versus 2.6 per cent for average 1968–72; see IMF, World Economic Outlook (1981), Table 3, p. 113.
Similar conclusions or policy lessons also emerge from the study by Bhagwati and Srinivasan (1979).
In appraising policy strategies, it should be recognized that what works for individual non-oil developing countries, or even small groups of them, may be less successful if adopted by all non-oil developing countries simultaneously. For example, if all of these countries were to significantly increase their exports at a time of weak world demand, the resulting excess supply could depress export prices enough to cancel the effect of volume increases on export earnings. This aggregation problem is discussed more fully in International Monetary Fund (1982).
There is also a literature that suggests that liberalization of the trade account should precede liberalization of the capital account; for example, see McKinnon (1981). This particular issue is dealt with in detail in a forthcoming study jointly undertaken by the Economic Commission for Latin America (ECLA) and the International Monetary Fund.
The introduction of a time trend to capture the secular component of the growth in real income did not add significantly to the explanatory power of the equation.
These elasticity estimates should be viewed as an upward bound of the “true” elasticity since any simultaneity between the two growth rates would bias our estimates in an upward direction.
Even within these subgroups, there are probably considerable differences in the sensitivity to industrial country growth. For example, it may be that the strength of the growth linkage in low-income countries would increase significantly if India and Pakistan (both of which have unusually low ratios of exports to GNP and of industrial country exports to total exports) were excluded from the subgroup.
These two analytical subgroups do, however, represent a large share of the GDP of non-oil developing countries. In 1980, for example, the respective shares of the four subgroups were: 17 per cent (net oil exporters), 44 per cent (major exporters of manufactures), 17 per cent (low-income countries), and 22 per cent (other net oil importers).
The countries included here are those whose oil exports (net of any imports of crude oil) both account for at least two thirds of the country’s total exports and are at least 100 million barrels a year (roughly equivalent to 1 per cent of annual world exports). These criteria are at present applied to 1978–80 averages.
Excluded from this coverage are a considerable number of dependent territories for which certain statistics are regularly compiled (e.g., in IFS) but which do not maintain foreign exchange reserves or encounter balance of payments problems in the usual sense.
As indicated in the text, the People’s Republic of China had to be excluded from this study because of the unavailability of certain trade data prior to 1976.
Occasional Papers of the International Monetary Fund
1. International Capital Markets: Recent Developments and Short-Term Prospects, by a Staff Team Headed by R.C. Williams, Exchange and Trade Relations Department. 1980.
2. Economic Stabilization and Growth in Portugal, by Hans O. Schmitt. 1981.
3. External Indebtedness of Developing Countries, by a Staff Team Headed by Bahram Nowzad and Richard C. Williams. 1981.
4. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1981.
5. Trade Policy Developments in Industrial Countries, by S.J. Anjaria, Z. Iqbal, L.L. Perez, and W.S. Tseng. 1981.
6. The Multilateral System of Payments: Keynes, Convertibility, and the International Monetary Fund’s Articles of Agreement, by Joseph Gold. 1981.
7. International Capital Markets: Recent Developments and Short-Term Prospects, 1981, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson. 1981.
8. Taxation in Sub-Saharan Africa. Part I: Tax Policy and Administration in SubSaharan Africa, by Carlos A. Aguirre, Peter S. Griffith, and M. Ziihtu Yiicelik. Part II: A Statistical Evaluation of Taxation in Sub-Saharan Africa, by Vito Tanzi. 1981.
9. World Economic Outlook: A Survey by the Staff of the International Monetary Fund. 1982.
10. International Comparisons of Government Expenditure, by Alan A. Tait and Peter S. Heller. 1982.
11. Payments Arrangements and the Expansion of Trade in Eastern and Southern Africa, by Shailendra J. Anjaria, Sena Eken, and John F. Laker. 1982.
12. Effects of Slowdown in Industrial Countries on Growth in Non-Oil Developing Countries, by Morris Goldstein and Mohsin S. Khan. 1982.
13. Currency Convertibility in the Economic Community of West African States, by John B. McLenaghan, Saleh M. Nsouli, and Klaus-Walter Riechel. 1982.
14. International Capital Markets: Developments and Prospects, 1982, by a Staff Team Headed by Richard C. Williams, with G.G. Johnson. 1982.
International Monetary Fund, Washington, D.C. 20431, U.S.A. Telephone number: 202 477 2945 Cable address: Interfund