In the 19th and 20th centuries, trade has by and large been an engine of economic growth for the global economy. It has also acted as an engine of growth for particular national economies -- in the 19th century, Canada and Australia and in the 20th century, Japan. In recent years, trade has acted as an engine of growth for the newly industrializing countries of Southeast Asia, the so-called "Gang of Four", namely, South Korea, Taiwan, Hong Kong, and Singapore. Briefly, the dynamic gains from trade arise from the effects of trade on the level of investment, and on the state of technical knowledge in the country. The increase in investment and improvements in innovations and technical progress will then lead to increased productivity and competitiveness, and trigger a further increase in trade. This positive feedback effect continues and brings about a "virtuous circle" of increased trade and economic growth.
However, the marginalization of many African countries especially during the last two decades shows clearly that Africa needs to adopt and prosecute a policy of structural transformation in order to achieve rapid and sustainable economic growth, raise living standards, and reduce the incidence of poverty. Since African countries are generally primary producing, structural transformation involves diversifying into manufacturing for export. Export diversification refers to a deliberate policy to expand number and type of exported items. This is important for primary producing countries that obtain the bulk of their export earnings from one or two primary commodities. Dependence on one or a few primary commodities leads to instability of export receipts and foreign exchange earnings especially in a world of volatile primary commodity prices. Instability of commodity prices inevitably leads to balance-of-payments problems and inability to steadily finance development expenditures.
The obvious solution is to encourage exportation of other products or, more importantly, the exportation of manufactured goods. Dependence on manufactured exports is more beneficial as manufactured goods tend to have high price and income elasticities of demand. Consequently, foreign exchange earnings from manufactured exports tend to rise more rapidly over time and to be less volatile. Thus, a major benefit of export diversification is that the country will become less susceptible to internationally transmitted shocks, particularly commodity trade cycles, and in general, the volatility of global primary commodity prices. This will enhance development programming and boost the rate of economic growth. Export diversification often goes hand in hand with export promotion, which refers to the set of measures and policies used by a country to boost the volume, value and variety of its exports in order to increase foreign exchange earnings, ensure balance-of-payments viability and promote economic development.
African Development Bank Economic Research Working Paper Series Enhancing Africa’s Trade: From Marginalization to an Export-Led Approach to Development Milton A. Iyoha Professor, Department of Economics & Statistics University of Benin, Nigeria Economic Research Working Paper No 77 (August 2005)
To learn more about this author, visit African Development Bank's Website.
Like this article? Share it with your friends
|
|
African Development Bank
(Visit African's Website)
The African Development Bank is the
premier financial development institution
of Africa, dedicated to combating poverty
and improving the lives of people of the
continent and engaged in the task of
mobilizing resources towards the economic
and social progress of its Regional Member
Countries.The Bank’s s mission is to
promote economic and social development
through loans, equity investments, and
technical assistance.
The ADB is a multilateral development bank
whose shareholders include 53 African
countries and 24 non-African countries
from the Americas, Asia, and Europe. It
was established in 1964, with its
headquarters in Abidjan, Côte d’Ivoire,
and officially began operations in 1967.
|
|
|
African Development Bank's
Complete
List Of
African-Accounts
Articles
|
|
If you enjoyed this article, get African Development Bank's Complete List of African-Accounts Articles For FREE!
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
