Working Paper: CEPR ID: DP499
Authors: Riccardo Faini; Fernando Clavijo; Abdel Senhadji
Abstract: The constraints imposed upon the growth of LDC exports by international demand have been the subject of a long-standing controversy. In this paper we present estimates of manufactures export-demand functions for 23 LDCs. We focus first on the constraints that the international environment imposes upon export growth for an individual LDC. We assess the claim that supply factors play a dominant role in affecting export performances by testing the `small-country hypothesis' of an infinitely elastic demand. We turn next to the constraints on global export growth and ask whether exports from LDCs compete mostly with Northern products, or are instead substitutes for exports from other LDCs. This allows us to assess the empirical validity of Cline's 1982 claim that a generalized outward shift in the LDCs' export-supply schedule would be associated with a significant decline in prices and would undermine the success of a widespread export-led strategy. We find that for a representative LDC a large share almost 80% of the benefits of devaluation on export revenues vanish when other LDC competitors pursue similar policies.
Keywords: export demand; supply; price elasticities; devaluation
JEL Codes: 410; 130
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International demand does not significantly constrain LDC export growth (F10) | Domestic policies are the overriding factor in determining export performance (F10) |
| Competition among LDCs (O54) | Relationship between LDC exports and international demand is not straightforward (F14) |
| Price elasticities for LDC exports are not infinitely elastic (F14) | Demand factors play a role in determining export volumes (F10) |
| Nearly 80% of the benefits of devaluation on export revenues are diminished when other LDCs pursue similar devaluation strategies (F14) | Competition among LDCs significantly impacts export revenues (F14) |
| Generalized export drive (F10) | Competition among LDCs (O54) |
| Both demand and supply factors must be considered when evaluating the export performance of developing countries (F10) | Export performance of developing countries (O57) |