Export Led Growth

Export-led growth is where GDP is increased through the exportation of goods. An increase in RGDP is mainly due to an increase in successful exports of goods and services from the economy. It is a way in which nations can create economic growth by engaging in trade with other countries, therefore increasing the amount of products exported, increasing real GDP and economic growth. It involves the process of exporting goods from one country to another in order to increase real GDP. Countries may seek economic development by opening themselves to international trade.

Why do countries do this?

Export Led Growth can be used to stimulate growth through recession by maintaining spending through exports. Exports are an injection into the economy meaning that there will be a rise in AD but this may be further increased by the multiplier effect. For example, growing export sales, the initial injection, leads to increases in investment because of the accelerator effect which shows the relationship between RGDP and investment.

Growing export sales provide revenues and profits for businesses which can then feed through to an increase in investment spending. An increase in exports leads to an injection into the circular flow of income, which can be used for investment to fuel further economic growth.

An advantage of growing export sales provides revenues and profits for businesses which can then feed through to an increase in capital investment spending. This can be to increase trade with other countries and provide investment into businesses that export goods and services. Also if a country’s consumption is reaching maximum capacity then it can be a good idea to export to find a new market.

It can provide jobs as well as increasing business revenues and profits which will later cause an increase in capital investment spending. This will lead to an increase in real GDP which will therefore lead to a growth in the economy (multiplier effect).

Examples of Export Led Growth

The last thirty years have seen tremendous spread of the export-led growth paradigm. The strategy was pioneered by Germany and Japan in the 1950s and 1960s. In the 1970s and 1980s it was adopted by the four East Asian Tigers — South Korea, Taiwan, Hong Kong, and Singapore. China, Ireland, South Korea, Vietnam and other emerging countries — helps fuel long run growth in the economy — increasing GDP and net trade.