Outward -looking versus inward -looking industrialization strategies: The effect on GNP growth in developing countries over time

Thomas Michael Hatcher, Fordham University


The relationship between the rate of growth of developing countries and the industrialization strategies adopted was evaluated from the 1963-1985 period. Higher rates of growth were hypothesized to be the result of more open or outward-looking development policies.^ A cross-section study was conducted using data for 21 developing countries. The nations were grouped into four categories: strongly outward, moderately outward, moderately inward and strongly inward-looking. The combined growth rates of the countries within each of the four groups was compared for two different time periods: 1963-1973 and 1973-1985.^ Higher growth rates were achieved the more outward oriented the nation's development strategy. The criteria used to determine the classification of a nation's market orientation combined the following quantitative and qualitative indicators: effective rate of protection, use of direct controls (quotas and import licensing), use of export incentives, and degree of exchange rate overvaluation.^ A single equation model was utilized to represent the relationship between various factors responsible for the determination of GNP (or GDP). Ordinary least squares was used to estimate the equation in order to determine the relative importance of several factors, of which the export variable was thought to be the most important. In addition, an attempt was made to identify and evaluate the links between trade strategy and macroeconomic performance in order to better explain the beneficial aspects of export-promotion and outward-looking development strategies on economic development and performance.^ The empirical results of this dissertation indicate that exports are indeed more a handmaiden than an engine of growth. However, through careful analysis of the regression results, one finds evidence that increased efficiency of investment, production, and resource allocation are integral parts of the identification and formulation of the nebulous link between trade policy, exports and economic growth. The estimation results show that the more liberal a nation's trade and industrialization policies, the greater was the efficiency of investment and the level of industrialization. Furthermore, the impact of trade policy orientation on the efficiency of investment and the level of industrial development was found to be more important than its impact on exports in explaining economic growth.^ When the performance for the various groups were compared between the two time periods, the outward-looking nations were better able to cope with the detrimental effects of the oil shocks and the resultant world-wide downturn in economic activity. Despite the decline in the growth of world trade, outward-looking nations maintained higher levels of growth and efficiency than inward-looking countries. ^

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Recommended Citation

Hatcher, Thomas Michael, "Outward -looking versus inward -looking industrialization strategies: The effect on GNP growth in developing countries over time" (1989). ETD Collection for Fordham University. AAI8917234.