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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