The favourable external economic environment that had made export-led growth strategies viable was severely disrupted by the global crisis in 2008. It was well perceived that export-led growth strategies must sooner or later reach their limits when many countries pursue them simultaneously. Competition among economies on the basis of low labour costs and light taxation means a race to the bottom, mostly with little gains for economic development, but always with potentially severe social consequences. Developing countries could compensate for the resulting decline in aggregate demand growth through domestic demand if their domestic markets were sufficiently large and if they avoided an import boom, which causes balance of payments problems. Concentrating on household consumption, it was presumed that the sales potential in some large emerging economies was great but also that imports might meet demand of most of the new domestic consumption. Sustaining a shift towards a more balanced growth path requires changes in the production structure fostered by product innovation, to make domestic production correspond to newly emerging demand patterns. The associated new employment and wage opportunities allowed realising emerging sales potential through rising incomes, rather than rising household debt.
Many developing countries like Bangladesh, have pursued export-led growth strategies over the past three decades. The success of such strategies depends on rapidly growing global demand and the ability of a country to enter market segments with high demand growth and potential for productivity growth. What was new at that juncture was that growth of demand from the developed countries must be expected to remain weak for years to come. Therefore, a rebalancing of the forces of growth towards a greater weight of domestic demand became indispensable. It became a formidable task for all developing countries, though more difficult for some than others.
Implication for a greater role of consumer demand in developing countries' growth strategies have often been frowned upon because of the said insufficient market size of these countries. However, rapid growth in many of these countries over the past two decades may well have changed the situation. Given that a rebalancing of growth strategies implied changes in developing countries' policy orientations, it has been crucially important to determine whether the required sales potential exists before considering any policy changes. Supply-side focus of OECD (2013) and the likelihood of the ability of the developing countries to increase domestic demand and productive capacity were identified by World Bank (2011) as necessary to ensure sustainable growth in developing countries. Adopting a demand-side perspective facilitates a scrutiny of the processes involved in shifting the orientation of a country's growth strategy from one component of demand (i.e. exports) to another (i.e. domestic demand). It also allowed establishing a link between the orientation of growth strategies and global rebalancing, much of which is related to the share of household consumption in aggregate demand. The G20 Leaders' Statement at the Pittsburgh Summit (2009) called for a rotation of global demand from countries with a current account deficit towards countries with a current account surplus, where domestic expenditure in deficit countries would no longer exceed their income but rapid global growth would be maintained. This is because surplus countries would, at least for a period of time, record accelerated domestic demand growth in excess of their income. Finally, some of those countries whose export opportunities were adversely affected by a prolonged period of slow growth in developed economies, ran the risk of falling into the so-called "middle-income trap", as reduced growth of their manufactured exports significantly slowed down their economic growth. It is generally argued that those countries would increasingly need to rely on innovation (i.e. "investment" in the national accounting identity) and household consumption expenditure in order to continue to catch up to the income levels and standards of living of the developed countries.
The summary findings from an empirical study on the participation of developing countries in World Trade (WT/COMTD/W/1516 August 1996, Committee on Trade and Development) is very relevant here: (1) The share of manufactures in world merchandise trade fluctuated in the range of 55-60 per cent between 1973 and 1985, then increased sharply, reaching 75 per cent by 1995. (2) After peaking at 28 per cent in 1980 (mainly due to exports of fuels), the share of developing countries in world merchandise trade declined until the second half of the 1980s, after which it resumed growing as petroleum prices bottomed out and the developing countries continued to expand their share of world trade in manufactured products. (3) Since 1980, the share of developing countries in world exports of mining products (mainly fuels) has fallen by a quarter, while their share of world trade in manufactured products has doubled from 10 to 20 per cent. (4) The share of manufactures in world merchandise trade fluctuated in the range of 55-60 per cent between 1973 and 1985 and then increased sharply, reaching 75 per cent by 1995. (5) After peaking at 28 per cent in 1980 (mainly due to exports of fuels), the share of developing countries in world merchandise trade declined until the second half of the 1980s, after which it resumed growing as petroleum prices bottomed out and the developing countries continued to expand their share of world trade in manufactures. (6) As a group, the Asian developing countries have out-performed other developing countries by a wide margin in terms of their share of world trade, their share of FDI (foreign direct investment) flows to developing countries, and their ratio of trade-to-GDP. (7) A comparison of the export performance of the least developed countries (LDCs) since 1980 with that of all developing countries confirms not only a strong correlation between export performance and the share of manufactured products in exports, but a similar positive correlation between exports and both the share of investment in GDP (gross domestic product) and the share of manufactures in GDP.
The issue of low development is very topical at present with deepening differences among developing countries. The participation of developing countries in world economic and social growth is nowadays a key factor of success and advancement of supranational efforts in economic and political cooperation. Millennium goals of the WTO (World Trade Organisation) conference in Hong Kong pointed at the increasing importance of the development issue for the entire global economy to function and thereby they were amended in the interest of more secure and balanced development of developing regions.
On global level, the analyses were based on the role, legitimacy and efficiency of international regimes which, especially in the economic sphere, represent the main tool for the response of global economy to changing conditions resulting from globalisation. Ethics and social responsibility of transnational corporations the influence of which is often greater than the recourses of national governments, was also a key factor for understanding the new role of various participants in global economy and politics. Transparency and non-corrupt environment in politics and all levels of governance are therefore essential.
The writer, a former Secretary to the GoB and Chairman, NBR, is now Chairman, Chittagong Stock Exchange and Senior Vice Chairman, South Asian
Federation of Exchanges.
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