Monday, March 1, 2021

Instability of export earnings of developing countries is caused by both demand and supply factors.

Instability of export earnings of developing countries is caused by both demand and supply factors.

Instability of export earnings of developing Export earnings instability in developing countries is the result of a number of factors. First, many developing countries have specialized on the export of primary commodities, which are peculiarly susceptible to shifts in supply and demand, as well as being more price inelastic than are, for example, manufactured goods. Instability of export earnings of developing The transmission of instability of demand for developing country exports through the business cycles in the industrialized countries or fluctuations in the quantities supplied for export may thus be one potential source of instability in export revenues. Instability of export earnings of developing Second, the exports of many developing countries are not only concentrated by sector (commodities) but also geographically, with obvious implications when linked to factors affecting demand in the importing countries. Instability of export earnings of developing Third, the markets for products in which developing countries have specialized are often characterized by speculation on the one hand and oligopoly on the other. Instability affects development through such variables as imports, savings, investment, employment, government revenues and private income.

Instability of export earnings of developing For many of the developing countries, exports of primary products are the overwhelmingly important source of foreign exchange earnings. Instability of export earnings of developing In view of the virtual absence or lack of capital goods industry, steadily rising imports must provide the investment goods and industrial raw materials necessary to increase productive capacity. Instability of export earnings of developing The ability to import, of course, depends not only on the foreign exchange earnings from exports but also from official and private capital inflows from abroad. Instability of export earnings of developing At present, however, it is generally believed that the flow of foreign capital is not likely to meet the foreign exchange requirements for the desired rate of economic growth of the developing countries.Instability of export earnings of developing For these countries, therefore, the behavior (both the level and year-to-year time path) of export earnings is crucial to their developmental efforts. Instability of export earnings of developing The heavy dependence of many developing countries on the export of primary products gives rise to two separate types of problems widely discussed in the literature on trade and development. The first is the instability of primary product prices and, more generally, of export earnings. The other problem is the lagging growth rate of primary product exports. This study is concerned with the former--the problem of short-run fluctuations in export earnings.

It is often claimed that the export earnings of developing countries undergo greater year-to-year fluctuations than do the earnings of developed countries. Instability of export earnings of developing The argument runs as follows: Low price elasticities of demand and supply for most primary products, coupled with uncontrolled variability in demand and supply, lead to sharp fluctuations in both prices and proceeds of these commodities. Export instability tends to be greater for developing countries owing to the tendency for specialization in primary products, concentration on the export of a limited range of products, i.e., lack of diversification, and geographic concentration of their exports in one or few developedcountry markets. Such excessive instability, it is argued, is detrimental to the stability and growth of the economy. Among other things, year-to-year fluctuations in export earnings tend to produce combined multiplier and accelerator effects on domestic income, with inflationary and deflationary consequences, unless offset by appropriate domestic policies. Instability of export earnings of developing Even if the degree of instability were the same in developed and developing countries, the latter may suffer more damage because 2 of their alleged greater dependence on foreign trade and lack of techniques and facilities necessary for effective counter-cyclical monetary and fiscal policies.


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