Economic Performance of Developing Countries According to Their Trade Orientation

The following shows that an outward orientation was generally associated with a higher average yearly growth rate of real GDP than was an inward orientation during the 19631973, 19731985, and 1985-1998 time periods for a group of 41 developing countries. Because of the petroleum crises, growth was slower during the second than during the first and third time periods, except for moderately and strongly inward countries for the third period. Association, of course, does not mean causality. Results for the first two time periods were confirmed by econometric analysis by Salvatore and Hatcher (1991). The World Bank defines strong outward orientation as the absence or near absence of trade controls. Moderate outward orientation refers to an overall incentive structure that is only moderately biased in favor of production for domestic rather than export markets. With moderate inward orientation, the overall incentive structure distinctly favors production for the domestic rather than for export markets, while with a strong inward orientation the overall incentive structure strongly favors domestic production over production for export. Table: Growth According to Trade Orientation, 1963-1998 Average Yearly Growth Rates

Trade Orientation Strongly outward Moderately outward Moderately Inward Strongly Inward

1963-1973 6.9% 4.9 4.0 1.6

1973-1985 5.9% 1.6 1.7 -0.1

1985-1998 6.8% 2.4 -0.1 -0.2

Source: World Bank, World Development Report, 1987 and 1999/2000, and D. Salvatore and T. Hatcher, Inward Oriented and Outward Oriented Trade Strategies, Journal of Development Studies, April 1991, pp. 725