EXPORT INSTABILITY AND ECONOMIC GROWTH

This research explores the relationship between export instability and economic growth. The dual focus in this exploration is on the functioning of the relationship in developing countries and econometric models that may be used in the application of the relationship to the economy of the State of Kuwait.

The General Relationship Between Exports and Economic Growth

A widely made claim is that "both historically and in the contemporary world economy, trade has been the engine of growth" (Thirlwall, 1990, p. 338). A further contention is made that almost no example of a country may be found that has "for a long period sustained a growth rate substantially higher than its growth of exports" (Thirlwall, 1990, p. 338). Econometric studies have also found that, since 1950, growth rates for individual countries "correlate better with their export performance than with any other single economic indicator" (Thirlwall, 1990, p. 339). In this context, it is said that:

The statistical evidence for today's developing countries is not unequivocal, but in general it supports the hypothesis that the growth of exports plays a major part in the growth process by stimulating demand and encouraging savings and capital accumulation, and because exports increase the supply potential of the economy by raising the capacity to import (Thirlwall, 1990, p. 339).

The growth of exports "must be expected to have more of an effect on . . . g

. . .
on of a country's foreign trade multiplier and the rate of growth of exports (Bairam, 1990, p. 715). Importantly, however, this econometric research also determined that the application of the Harrod foreign trade multiplier model for the prediction of economic growth in oilexporting, developing economies "could lead to misleading results" (Bairam, 1990, p. 715). The TwoStage, Least Squares Model Arize (1990, pp. 891904) proposed a twostage, least squares model to describe the relationship between exports and economic growth. In this model, the supply of exports is specified "as a loglinear function of the relative price of exports . . . and of an index of the productive capacity of the country" (Arize, 1990, p. 893). The twostage, least squares model proposed by Arize (1990, pp. 891904) is a disequilibrium model. Because the model is a disequilibrium model, the examination of the relationship between the instability of exports (absence of either a steady level of exports, or absence of a steady rate of growth of exports) and economic growth within an economy is feasible. The several equations incorporated in this model are as follows: 1. Foreign price of exports: ? 1n(PX$) = ???
. . .

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Approximate Word count = 2566
Approximate Pages = 10 (250 words per page)

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