Productivity and externalities : models of export led growth

In developing countries, industrialization for successful export-led growth has been associated with rapid structural change and growth in productivity. Standard neoclassical growth models have difficulty explaining this change in performance. This paper has developed a simple analytical model incorporating export externalities that capture the large increases in the share of trade and total factor productivity that are associated with export-led growth. It also has developed a second model that breaks growth into its various components, which includes the effects of: (a) factor accumulation; (b) moving factors from areas of low productivity to area of high productivity; (c) exporting heavy and light manufactures; and (d) importing capital goods. The paper implements the second model with data from an archetypal semi-industrial country. The model accounts for the higher total factor productivity growth observed in countries pursuing export-led growth strategies. It also captures the pattern of structural change that such countries experience.