The East Asian Miracle of the 1960s catapulted the likes of Japan and Singapore, until then middling at best, to superstardom. Since then, it hasn't been difficult for countries with growth aspirations to bet on exports.
Indeed, Indonesia, Malaysia and Thailand followed on this path some years later. Then, in 1989, came the Washington Consensus, coined by economist John Williamson to describe a set of export-centred reforms that multilateral agencies prescribed for countries in crisis. China's story in recent years is already well-known.
But it may now be time to wind down on this long-standing export hope. So says economist Jose Antonio Ocampo, who earlier this year was in the race to head the World Bank. "This is very important basically because all developing countries have put their eggs in the export basket," says Ocampo, who teaches at Columbia University.
His word of caution for developing countries is because of the following trend. International trade has taken a beating after the world economic crisis of 2008-09. Just a year after that, the value of world exports had fallen by nearly a third - the speed of the fall was faster than what was witnessed eight decades earlier during the Great Depression. Though it recovered a year-and-a-half later, exports have slowed down ever since.
Crises such as the one in 2008-09 almost always jolt export-heavy countries in their aftermath. But as the increases of world exports by over 7% between 1986 and 2007 shows, the return to high growth happens soon after. This time, though, Ocampo is pessimistic about such a strong comeback.
In the last five years, world export growth has come down to a measly 2.7%. And Ocampo sees this number going up only marginally in the coming years: 3-4%. The crisis in Europe hasn't helped. That's a view also echoed by economists such as Nobel laureate Joseph Stiglitz who point out how the European banks also used to finance a lot of trade.
And Ocampo has two main reasons for why he is pessimistic about exports. First, the prolonged slowdown in the world's economic growth. This isn't seen changing in a hurry.
Second, the relationship between growth of trade and growth of GDP, or simply called elasticity. In the last decade, the best days of world exports, the ratio was a whopping 2.4.
"This is over," says Ocampo, who obtained a PhD in economics from Yale University. "The combination of these two has led to significant slowdown now and is likely to be so in the future."
Read more: We are in a new era of international trade: Jose Antonio Ocampo - The Economic Times
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