5 - Export-Led Growth and the Nonexport Economy

Summary

In the century before the First World War, Latin America followed a model of export-led growth. A successful export-led growth model implies a rapid rise in exports and in exports per head coupled with increases in labor productivity in the export sector. Yet this is only the first, albeit very important, condition for a significant rise in real income per head. The second condition is the transfer of productivity gains in the export sector to the nonexport economy. Thus the export sector needs to become the “engine of growth,” stimulating investment outside the export sector itself.

The export sector could provide such a stimulus in many ways. For example, thinking in terms of backward linkages, the growth of the export sector could promote investments in railways, which in turn would generate investments in sawmills (for lumber), capital goods (e.g., locomotives), and workshops for repair and maintenance of the rolling stock. In terms of forward linkages, the export sector could also contribute to a faster rate of investment. For example, cattle raising for export leads not only to investments in beef and beef-extract production but also to investments in the leather industry, the shoe industry, and even the chemical industry.