When there is vast global market, there is hardly anyone who wants to miss the opportunity to capture market share in global market. If one wants to do so by producing goods and services that is demanded in global market, it is termed as export driven growth strategy.
An independent nation is free to pursue any growth strategy provided that it should not precipitate disadvantages for others. More or less, ongoing trade war between US and China is the symptom impacts of export driven economic growth strategy of China. Let’s explore the realities.
Nowadays, autarky or mere self-sufficiency is almost outpaced by the today’s competitive world. Hence, nail-biting competition, as well as frictions in relationship would be common hereafter.
Understanding export driven economic growth strategy
Export driven growth strategy means more focus on the specific goods in which that nation has better comparative advantage over others.In short, more emphasis on the low cost production to ensure better competitiveness with greater market share.
By following such growth strategies, one is able to generate greater surplus for investment and economic development. Germany, Japan, South Korea, and now China are the best examples of export driven growth strategy since second half of the twentieth century.
Possible impacts of export driven economic growth strategy
As I stated earlier that while pursuing such growth strategies, the country in question has to face the friction with trading partners. Here are some impacts of export driven economic growth strategies worldwide.
1. Tussle for greater market Access
The fate of this strategy totally depends on the willingness of the other nations for which the product is produced. In the simple words, this strategy will work as long as there is no obstruction in the form of tariffs from trading partners.
But, in case of any disagreements, production needs to be dumped elsewhere with a give away price because their domestic market is incapable to absorb it.
2. Chances of higher level manipulative practices
In this approach, we cannot rule out the possibility of being victimized by the destination nation or importer. Hereby, surplus production on the hope of others isn’t free from potential risk. Therefore, this strategy looks temporary instead sustainable.
3. Currency manipulation
Currency manipulation is also a major characteristic of export-led growth strategy. Greater market share cannot possible unless there is low cost production or comparative advantage.
In case of losing comparative advantage, currency manipulation in the form of devaluation, remains only option to maintain market share.
4. Currency war among trading partners
By depreciating the value of curruncies, one can ensure cheap export but not without problems. So far, this technique has been exercised by the nations like China and Japan to boost export. It may irk other rivals and may receive same retaliatory action. This is enough to break out a currency war.
5. Loss of consumers
At the domestic level, currency devaluation has many more negative impacts. Rising inflation and low wages shrinks the domestic market, making more dependent on foreign countries. Decreasing purchasing power and low standards of living may ignite the feeling of resentment or wave of agitation.
6. Labours exploitation to make product cost effective
Low wage rates and large scale production are key to maintain low cost production. In the both cases, labours are the victim. High workload and low wages in such countries are common.Thus, economic inequality, human right issues, and public resentment would pose threat for political stability in the long run.
7. Strained relations at the global stage
Recent trade war between US and China is the best example of tussle over the market share. US is blaming for China’s growth strategy for ongoing trade imbalance.This is the major reason behind the trade war.
Finally, It is clear that you cannot go for greater market share unless other is ready to offer. One day, there would be a saturation point. Then, diminishing return cannot be averted.
Last words on export driven growth strategy,
In the last four decades, majority of emerging economies are busy in finding means to boost export through low cost production. At the same time, it is also true that natural or comparative advantage has its own limitation.
Also, exploring unethical means such as currency manipulation or dumping, aren’t enough to make it a sustainable strategies.
Although export-led growth strategy helps to generate greater surplus, employment, and higher standard of living, as per the opinions of renowned economists, its outcomes are short-lived with full of shortcomings.
Economies Of Scale and mass production
Opportunity cost and comparative advantage
Currency crisis and currency war
Hedging in stock market trading