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The East (and South-East) Asian “tiger” economies used exports to power their economic transformation from the mid-1960s through the 1990s. Should Sub-Saharan countries try to do the same? Can they? And how?
Exporting is critical for transforming small and medium-size economies. The opportunity to export widens the market available to domestic producers and thus increases potential demand and the prospects for higher prices. Higher demand allows a larger scale of production, which can increase employment and the use of other domestic factors of production. Larger scale production could also lower unit costs and increase competitiveness and thus boost profit margins for domestic producers. Exporting also enables a country to better align its production to its comparative advantage and to earn more from its factor endowments.
Exports also provide the foreign exchange to import the machinery and technology necessary in the short to medium term for technological upgrading. Over time, higher earnings from exports make it easier to finance investments (such as skills, technology development, and infrastructure) to change a country’s underlying factor endowments and comparative advantage. Exposed to competition on international markets, exporters have to increase their efficiency in production and marketing, in the process showing other domestic producers what is possible. Exporting also exposes domestic entrepreneurs to global tastes, standards, technologies, and best practices—providing opportunities for learning about new products, services, processes, and technologies that they could introduce at home.
Composition of China’s imports from Sub-Saharan Africa, 1995–2012
Competition from imports on the domestic market also pressures domestic firms to be more efficient. Ultimately, however, the foreign exchange to pay for imports must come from exports. So, through all these channels, exporting can help the economy—particularly a small or medium-sized one—to expand, raise employment and incomes, and promote structural change by facilitating learning and the introduction of new products, services, production processes, and technologies.
The East (and South-East) Asian “tiger economies” took advantage of such links to transform their economies from the mid-1960s through the 1990s. But that was decades ago. And the global economy has since changed. This chapter explores how Sub-Saharan countries can use the same export strategy today to drive their economic transformation, and how they must adapt that strategy to suit the times.