In this subsection, we explore two broad and closely related sets of issues. First, could an export-push strategy nevertheless be seriously market- and comparative advantage distorting?
Secondly, if it is not, and if it merely conforms to the market and reflects an economy‘s comparative advantage, is there then any need for it?
First, could an export-push strategy be seriously market- and comparative advantage distorting? For example, could a government be so bent on promoting the development of a particular (say, infant) industry to promote exports, an industry that is nevertheless in no way near having any present or potential future comparative-advantage, that it puts in vast amounts of resources determined to see its policy succeed? While such possibilities cannot a priori be ruled out, nonetheless the chances that such cases occur are expected to be few.
First, an export-push strategy implies a high degree of openness of the domestic economy to the international market and international competition such that a highly comparative
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advantage-disobeying industrial policy will be highly costly and, moreover, such costs are easy to see given international prices. What is more, when there are alternative industries to support, as surely there must be (perhaps those that do have a comparative advantage), the cost and benefit differences of different choices of industries can also be established. Any sensible government, or a government that is not plagued with extreme corruption, would surely take notice of this and adjust its policy. Indeed, such policy reversals have by no means been infrequent in the history of industrial policy in ESA economies, as noted earlier.
Secondly, political considerations are also an important factor. Beneficiaries of any export subsidies are foreign consumers. When any industrial policy that sets out to promote a particular industry for exports and that costs an enormous amount of public money, and especially if there is also clear and better alternative, the policy would ultimately be politically unsustainable.32
And, indeed, according to the findings by World Bank (1993), the early industrial and trade policies in the ESA economies it studied had not been market-distorting, and had broadly reflected those economies‘ comparative advantages. ―Not withstanding the protection that exists in all the HPAEs except Hong Kong and Singapore, domestic prices in these economies are closer to international prices than in other developing regions. Two bodies of evidence lead us to this conclusion. First, nominal tariff rates adjusted for the presence of nontariff barriers are lower in the HPAES than in most other developing economies. Second,
32 In contrast, under an import substitution regime (which may be used as the comparator here), domestic prices and, indeed, the exchange rates can often be so distorted that any evaluation of the costs of an industrial policy program can be difficult to make and even more difficult to see by the public, and beneficiary of any import-substitution subsidies will be domestic producers and consumers, which may remove much of the political sting from the issue.
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comparisons of real GNP across a broad range of economies indicate that domestic relative prices for tradable goods in the HPAEs are closer to international prices than in other regions‖ (World Bank, 1993, p.298-299).
However, ―[T]hese findings do not imply that governments were not attempting to influence industrial structure. They undoubtedly were. But they suggest that, despite government intentions, the manufacturing sector seems to have evolved roughly in accord with neoclassical expectations; industrial growth was largely market conforming‖ (World Bank, 1993, p.315).
Our second issue is: if the sectoral policies in ESA economies had indeed been market-conforming and had merely reflected the underlying comparative advantage of these economies, was there then any need for them? The same World Bank study appears to question this need when it calls into the question ―the efficacy of government efforts to promote or discourage specific sectors (World Bank, 1993, p.312). According to it, ―[I]n Korea, for example, despite the government's extensive efforts to speed the privates sector's shift from labor-intensive to capital- and technology-intensive industries, the relatively labor-intensive textiles and garments sector was nearly three times bigger than international norms predicted in 1988, a substantial increase relative to international norms from 1968.
During the same period, Korea merely maintained the international norm in chemicals, a heavily promoted sector, while other heavily promoted sectors, basic metals and metal products and machinery, achieved only modest improvements. Similar surprises are evident
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in Singapore which like Korea, has a government that aggressively intervened through a variety of mechanisms to promote capital- and technology-intensive industries. Here, the importance of textiles relative to the predicted norm has increased even more sharply. The textile sector went from double its predicted size in 1973 to eleven times in 1989. Over the same period, metal products and machinery declined from twelve to five times its predicted size‖ (World Bank, 1993, p.312-314).
Here is not the place to enquire into how the ―international norms‖ used in such an evaluation were calculated and what the counterfactuals might have been had there been a complete absence of sectoral and other export-push policies. The fact that Korea and Singapore (and many other ESA economies) had been among the most intervened economies in the world during its early phases of industrialization, and that they had also been among the fastest-growing economies in the world then, would seem to suggest that the answer is perhaps otherwise. Contrary to the view that the particular sectoral policies in these economies appear to have had a neutral or even harmful effect (it would seem odd to argue that these economies would somehow have grown even faster than they did without adopting the said policies, when many other not-so-heavily-intervened economies have in fact performed a lot poorer), the truth might be that these policies perhaps did play a role, on accounts of technological indivisibilities and capital market imperfections, and indeed the other factors (strategic negotiation, pecuniary externalities, and learning) the same World Bank study also acknowledges. Given their much super record of overall growth performance than other not-so-heavily-intervened economies, it would appear much more
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convincing to argue that the policies in question did, overall, play a positive role. On the other hand, it would also be wrong to suggest that other economies can then simply copy the same policies that were tried in Korea or Singapore (or indeed in any other higher-performing ESA economies), since each economy must have tried or not have tried a particular policy for an underlying reason, often specific to the conditions of that economy.
Successful policies in one economy may be transplanted to another, but it should be done only after careful study and analysis.
However, in spite of the caution, significant commonalities do appear to emerge from the successful export-push policies in ESA economies. The same World Bank (1993, p,143) study identifies the following four common elements towards a successful export push strategy: access for exporters to imports at world prices; access for exporters to long and short-term financing; government assistance in penetrating markets; and flexibility in policy implementation. Thus even though the form of export-push policies may have differed across ESA economies, these policies appear to have had a common set of core elements.