Export as an Engine of Growth
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Exports as an engine of Economic Growth – A critical analysis | |
Exports are generally defined as a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services.
Prior to the 1991 reforms, Indian government policies focussed on protectionism and import substitution industrialisation. However, today since the Indian economy has opened up to international trade, India’s export cart features goods as varied as food grains, textiles, jewellery to oil products, steel and pharmaceutical products.
Following figure demonstrates where exports figure in the grand scheme of things:
In the 4-sector model, the equation for GDP is:
C+I+G+X-M
It directly follows from this that higher the exports, higher the GDP. The underlying reasons may be as varied as the following: 1. Higher exports bring in more inflow of foreign exchange and this foreign exchange in turn increases the purchasing capacity of a nation in the international market. Thus, the country is able to import more in order to drive the economy.
2. Exports also facilitate the concept of specialisation wherein countries are able to concentrate more on what they are good at and finally achieve economies of scale in their core competencies for efficient production of goods. 3. A greater market is provided for all goods made and thus the producer is able to get a better price for the goods. This encourages the business to produce more, makes people more enterprising and thus stimulates industry growth. 4. The growth in industry consequently provides for greater employment opportunities which is one of the economic objectives.
A decline or fluctuation in exports may affect the growth in a negative way for the following reasons: 1.
Exports as an engine of Economic Growth – A critical analysis | |
Exports are generally defined as a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services.
Prior to the 1991 reforms, Indian government policies focussed on protectionism and import substitution industrialisation. However, today since the Indian economy has opened up to international trade, India’s export cart features goods as varied as food grains, textiles, jewellery to oil products, steel and pharmaceutical products.
Following figure demonstrates where exports figure in the grand scheme of things:
In the 4-sector model, the equation for GDP is:
C+I+G+X-M
It directly follows from this that higher the exports, higher the GDP. The underlying reasons may be as varied as the following: 1. Higher exports bring in more inflow of foreign exchange and this foreign exchange in turn increases the purchasing capacity of a nation in the international market. Thus, the country is able to import more in order to drive the economy.
2. Exports also facilitate the concept of specialisation wherein countries are able to concentrate more on what they are good at and finally achieve economies of scale in their core competencies for efficient production of goods. 3. A greater market is provided for all goods made and thus the producer is able to get a better price for the goods. This encourages the business to produce more, makes people more enterprising and thus stimulates industry growth. 4. The growth in industry consequently provides for greater employment opportunities which is one of the economic objectives.
A decline or fluctuation in exports may affect the growth in a negative way for the following reasons: 1.