Export-Led Development

Structuralism

The structuralist perspective, informed by both development economics and critical political economy, including dependency theory and world-systems theory, has viewed state intervention as both useful and necessary to industrialize developing nations and thereby reduce global inequalities. The heterogeneous theories critical of laissez-faire and neoclassical economics generally agree that a lack of state intervention in the economy means that developing countries will not move beyond primary production and simple manufacturing without state intervention and, therefore, that international trade exacerbates international inequalities. In particular, structuralists have pointed to declining “terms of trade”—the value of a country's exports relative to its imports—for primary product exporters. The declining price of primary products relative to manufactured goods means that primary product-exporting countries must export ever-higher volumes to purchase the same quantity of manufactured goods over time. Additionally, underdevelopment may be entrenched by the “resource curse,” which points to the strong but paradoxical relationship between high stocks of resources such as minerals and oil and low levels of economic development.

Import Substitution Industrialism

After World War II, a structuralist consensus formed in developing economics and became the dominant theory guiding economic policy in developing countries. In the 1950s, most developing countries pursued import substitution industrialization (ISI) to encourage domestic manufacturing to meet domestic needs. ISI drew on the experience of Latin American nations that had pursued these policies since the Great Depression as a solution to export dependency. Under ISI, governments imposed tariffs on imported manufactured goods to limit competition (but did not impose tariffs on inputs for domestic manufacturing) and provided incentives and assistance to the local firms that manufactured these goods. Fiscal policy involved raising the exchange rate of domestic currency, thereby making imports without tariffs cheaper and making exports more expensive (which favored investment in domestic industry). Nations such as Brazil, the paradigmatic case for ISI, promoted domestic industries through support for domestic firms, state ownership of some sectors, and allowing entry to foreign firms and transnational corporations that the state required to be oriented toward meeting domestic needs. Brazil by the 1970s met the majority of domestic demand for steel, textiles, transportation equipment, and pharmaceuticals. Large nations, with potentially large domestic demand, generally fared best under ISI, while the domestic demand of smaller countries was too small for efficient mass production. But there were several problems with the ISI model. First, ISI did not reduce inequality within the countries that pursued it. Second, ISI did little to reduce imports, as the sectors targeted by ISI required considerable inputs of capital goods such as machinery. This strategy in many instances led to large national debts, which, together with the interest rates hikes of the late 1970s, ushered in the debt crisis of the 1980s.

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