Impact of export fluctuations on income: a cross country analysis

Abstract

The degree of export fluctuations and its impact on income have been subject to a number of investigations. A major bone of contention has been whether developing countries experience a greater degree of fluctuation in exports than developed countries, and whether such fluctuations affect the growth-rate of developing countries. This study examines this contention y constructing comparable econometric models for 11 countries, including both developing and developed countries. From these models it seeks to derive the export-income multiplier which can throw light on the question as to which countries are affected more than others by export fluctuations. The study shows that the long-run multiplier relating to both income and investment are generally larger for developing countries than for developed countries. In addition, for each country the dynamic multipliers have been used to derive the income path which is attributable to changes in exports as they actually occurred. The income path has been derived on the assumption that real exports grow at a constant rate every year. A comparison of these two simulated income series definitely shows that an increase in the instability of exports leads to an increase in the instability of income in every country. However, the impact of instability in exports on income growth rate is not in the same degree in all counties. In the case of only five countries, there is a decline in growth rate when there is an increase in instability of exports, even though a cross country regression shows that in general countries with higher instability in exports have on the average a lower growth rate.