Export Dependency

Export dependency is the condition of being dependent on exports as a source of national revenue; it is especially common among developing nations that can produce goods at a cheaper price than the developed nations that constitute a significant part—and for some companies or industries, even the whole—of their market. When too much of a country's gross domestic product (GDP) comes from exports, it finds itself at the mercy of the [Page 142]countries to which it exports—of their economic health and possibly their demands. Much attention is paid to the fact, for instance, that half of Asia's collective GDP comes from exports—twice what it was in 1980, which is a significant factor in understanding events like the Asian financial crisis of 1997.

Asian countries have been exporting electronics products, in particular, at a significant profit for decades. The 1997–98 crisis was a perfect illustration of the connectedness of the world's economies: foreign debt and the decision to float Thai currency (previously pegged to the U.S. dollar) precipitated the crisis, which spread throughout southeast Asia, devaluing currencies and assets, increasing private debt, and tromping through stock exchanges. The International Monetary Fund helped to stabilize the currencies of Indonesia, South Korea, and Thailand, but much of the recovery—which came by the end of the decade, sooner than would have been expected from similar calamities in the West—was a result of the export-based economy. Countries without such heavy reliance on exports would have found themselves short of customers, who would be affected by the inflation and rampant unemployment, but so many customers of Asian manufacturing were far outside the range of the crisis, and their spending habits continued as normal. At the same time, this recovery was short-lived: by 2002, Asian exports were slumping, especially in electronics, as the Western economic slowdown and the cautious spending that followed the September 11, 2001, attacks cut into the demand for high-end electronics and consumer luxuries. The United States, which is the biggest market for many Asian exporters, saw the biggest dip in demand, but it was pronounced across the West, and economic growth in many Asian countries slowed to the lowest it had been, apart from the crisis years, in decades. Taiwan, which was barely affected by the financial crisis despite analysts’ fears, was the worst hit by the export slump and experienced its worst quarter-to-quarter decline in GDP in over 20 years. Japan saw its unemployment reach a record high of 5.4 percent in October 2001, as companies downsized and closed plants in response to the slowdown.

Many have argued for decades, raising their voices in recent years, that East Asian nations in particular need to switch to domestic-demand-based economic growth, away from the export-dependent growth model currently holding sway, to reduce their vulnerability to the slings and arrows of overseas fortunes. Saying this, however, is perhaps akin to saying that farmers need to decouple themselves from the random chance of the weather and adopt a model in which only their own efforts affect the quality of their crops: Saying it does not make it so, and the path from one model to another is not necessarily obvious. However, a more realistic or attainable option might be to better diversify export markets while strengthening domestic institutions and the domestic financial sector to better weather storms—growing more crops, figuratively speaking, and being prepared to run for cover if the rivers rise.

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