Economic Growth and Technological Level Essay

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Jong-Il Kim / Journal of Economic Research 14 (2009) 285–308

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The Technological level of
Exports and Economic Growth
Jong-Il Kim1
Dongguuk University
Received 12 September 2009 ; Accepted 15 November 2009
Abstract
This study tries to explore the relationship between exports and economic growth by focusing on the technological level of exports.
We construct the technological level index of exports by using trade data and investigate the significance of the technological level of exports in determining economic growth. The empirical results imply that the technological level, rather than openness or mere trade volume, matters for long-run economic performance.
By introducing the technological level index of exports, we provide a compromising explanation to the controversy over the relationship between exports and economic growth.
Keywords : technological level; export; economic growth
JEL classification : F43, O24, O47

1
Professor of Economics, Dongguk Univ-Seoul,Department of Economics, Seoul
100715, South Korea. Tel: +82-2-2260-3274. Fax: +82-2-2260-3940. E-mail: jongil@dongguk.edu 286

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The Technological level of Exports and Economic Growth

Introduction

Export-orientation is widely accepted as an effective strategy for economic growth. We have no difficulty accepting this view from the last 40-year experience of economic growth of East Asian countries. Krueger(1997) and other neoclassical development economists have argued since long ago that a key success factor of East Asian economic growth is its export-promotion strategy with outward orientation. The unprecedented export growth of East Asian countries was saliently distinguished from the stagnant performance of Latin
American countries with their inward import-substitution policies. The fact seems to be consistent with the basic tenet of trade theory that there are always gains from trade and that trade liberalization results in a more efficient allocation of resources.2 In addition, many empirical growth-regression studies provide ample evidence on the positive effect of trade liberalization, i.e. openness, on long-run economic growth (To name a few, Sachs and Warner(1995),
Hall and Jones(1999)). In recent years, most developing countries seem to be pursuing export-promotion as their development strategy after assuming openness and exporting would bring about better economic performance, although their policy options have become narrower under the new trade regime of WTO.
However, there are skeptics on the causation from exporting and openness to economic growth. First, they argue what matters for long-term growth is not exporting itself but the incentive for improvement, that is, competition, although export growth surely leads to a short or medium-term boom. Levinsohn(1993) argued that imports rather than exports after trade liberalization could work as market discipline for domestic producers and provided empirical evidence that the productivity of import-competing sectors grew faster than that of non-traded goods sectors. In this respect, trade liberalization and thus competition in domestic markets rather than export-promotion are critical for better economic performance.
Second, export growth could be the effect rather than the cause of good economic performance. Based on micro data analysis, Roberts and Tybout(1997) argued that exporting firms show better performance just because higher performers usually enter the export market. In this respect, export growth is not the cause but the result of the hidden cause of East Asian competitiveness. Rodrik(1994) argued that the prime cause of high growth of Korea and Taiwan was not export growth but high fixed investment. He emphasized that Korea experienced high export growth already in the late 1950s when the economic
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It is the static gains from trade. The increasing returns from the enlarged market due to exporting and the efficiency improvement from competition abroad could bring about dynamic gains of…