Export-Propelled Growth: An Empirical Investigation of the Role of Foreign Exchange
Nwanna, Gladson I., Atlantic Economic Journal
Abundance of foreign exchange, whether resulting largely from increases in export earnings as assumed in this study or from capital inflows or reductions in imports, has been cited as a contributing factor to economic growth [Kader, American Economist, 1980; Hagen, Development and Planning, 1972; Esfahani, JDE, 1991]. The increase in the stock of foreign exchange is envisaged to stimulate capital formation and have a multiplier effect to propel growth. This role is also assumed by proponents of export-oriented policies and in empirical studies that have pointed to the positive impact of export expansion on economic growth of LDCs [Michalopoulos et al., A.I.D. Discussion Paper, 1973; Michaely, JDE, 1977; Belassa, JDE, 1978; Tyler, JDE, 1981; Feder, JDE, 1983; Kavoussi, JDA, 1985].
The present study examines the validity of this alleged role of foreign exchange using a sample of developing countries. The sample comprises five non-Gulf OPEC Countries--Ecuador, Gabon, Indonesia, Nigeria, and Venezuela. In these countries, petroleum revenue comprised, on average, over 60 percent of total annual revenue and over 70 percent of the total export and foreign exchange earnings during the period 1975-90 when a reasonable evaluation of growth in these countries could be made.
The theoretical framework is based on a modified version of the Keynesian model of income determination. Although this model is generally better suited to open economic structure of developed economies, the model could be extended to the sample countries. …