Publications  Income Distribution

 

Hypothesis 6:

The Pattern of Development  

Primary and Manufactured Exports

 

 

Some structural analysts have argued that a strategy emphasizing primary exports tends to lead to inequality, while manufactured exports are associated with a more egalitarian distribution. One reason is that primary exports (of oil, minerals and plantation crops) frequently generate rents, concentrated in a few hands. Those who exercise control over these economic resources derive political power from them which they use to ensure that private incomes in the sector are high. Whether an oil company, mine or plantation is in private or public hands seems to make relatively little difference to the income of those involved. Even where the primary export is a small-holder agricultural crop, the growers often have greater economic and political power and obtain higher incomes than those who produce staple foods for the domestic market, because they generate crucial foreign exchange.

On the other hand, exports of manufactured goods usually are competitive in the world market only if they are produced by labor-intensive industries. The in­crease in labor demand will raise wages, because either its marginal or average product rises. The rapid growth of labor-intensive manufactures may also strength­en the political position of workers, contributing further to ensuring them a larger share of income. Finally, economies able to compete on world markets are likely to have fewer of the windfall gains which result from distortions in the economy and which accrue mainly to the upper income groups.

In addition to Chenery and Syrquin, Papanek  has also examined the role of exports. Ahluwalia has tested a different structural variable: the extent of urbanization as a measure of the importance of the modern, urban sector. Their results generally have been as hypothesized.

 

In our results as well primary exports are quite consistently associated with less equal income distribution, which is statistically significant until socio-political and regional variables are introduced. The sharp drop in statistical significance when regional dummies are added to the regression does not necessarily detract from the causal significance of primary exports, since primary-export dependence and regional location are substantially correlated.

While primary exports are significantly related to income distribution, the co­efficients are relatively low. In regressions without regional dummies, very primary-export-intensive country (60% of GDP) would have a projected Gini .06 higher than one without any such exports and the share of the poorest 40 percent would be 2 percent lower, both about 15 percent less equal than the typical measure.

The rate of manufactured exports, in contrast, never has a significant effect on income distribution. The coefficients are low and for the Gini they have the wrong sign in terms of our hypothesis: a high rate of manufactured exports is associated with unequal incomes. The presumed association of industrial exports and equality, probably based on the experience of the Asian “Gang of Four” (Korea, Taiwan, Hong Kong, and Singapore), just does not seem to apply elsewhere. Two plausible explanations are: (1) exporters of manufactured goods in some cases have received massive indirect subsidies (e.g. extremely cheap credit, losses by public enterprises), with distortions in factor and product markets, resulting in the creation of a relative­ly small number of jobs in export manufacturing; and (ii) the loss of jobs in other sectors, for instance by the tractorization of agriculture or greater capital intensity in domestic industrial production. If labor demand does not increase rapidly, labor income could stagnate and income distribution could become less equal. This re­lationship between structure of production, that is development strategy, and income distribution warrants further analysis as well.

 

 

 

 

 

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