Academic Scholarship

Binding Constraint on Economic Growth under Export-Oriented Industrialization and Globalization

Applied Economics, Vol. 44, Issue 20, pp. 2569-2576, July 2012

Photo Needed Yui Suzuki, Ph.D.
School of Diplomacy and International Relations

The two-gap model of economic growth implies that different constraints on economic growth, namely the savings and the foreign exchange availability, are binding at different times. This paper estimates these varying binding constraints in sixteen countries in East and Southeast Asia and Latin America, and explores their differences across countries, regions, and periods. I show that the East and Southeast Asian countries, which are recognized to be successful in export-oriented industrialization, are less constrained by the foreign exchange availability with reinforced export capacity than the Latin American countries, which had carried some inertia of import substituting industrialization policy until the 1980's. In addition, the economic growth turns out to be more constrained by the domestic savings in recent years, which can be a reflection of capital account liberalization policies typically implemented in the late 1980's and the 1990's, and/or a diminishing return to export-led growth. In either case, this might be a factor underlining the recent reconsideration of export-oriented development strategy to balance past excessive dependence on the external demand in several countries in East and Southeast Asia.


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