Growth and Change zyxwvut Vol. 25 (Winter 1994), pp. 3-24 zyxwv Effects of World Demand and Competitiveness on Exports and Economic Growth JESSIE POON zyxw ABSTRACT zyxwvu There is little consensus in the development literature on whether it is supply explanations such as competitiveness levels, or, the external demand structure which drive the link between exports and economic growth. This paper attempts to reconcile the polarization of the aforementioned viewpoints by examining the effects of both world demand and a country’s competitiveness in exports on the relationship between export growth and economic growth. The results indicate that only developing countries which are highly competitive and which also face relatively favorable external demand for their exports experience above-average growth. Weak external demand reduces the positive effects of exports on growth substantially but may be offset by high levels of competitiveness in trade. The results imply that both regional and Third World growth studies on the link between exports and economic growth would profit more from integrating both supply as well as external demand explanations rather than succumb zyxwv to one of the two viewpoints. Introduction T since the 1950s. Two viewpoints characterize the development literature on the relationship between exports and economic growth. The first considers that economic growth is a consequence of favorable internal and supply-related factors. Exports promote growth because they stimulate the efficient use of these factors for economic production and enable a country or region to remain competitive (Bhagwati 1988; Kravis 1973; Riedel 1987). In the second viewpoint, the success of export-led growth is said to rest on a favorable trade environment which depends on the economic prosperity of core regions. This demand-oriented viewpoint suggests that exports are not expected to expand faster than the demand for them by core regions (e.g. Lewis 1980; Nurkse 1961; Prebisch 1962). The difference between the two viewpoints lies in the weight given to the mechanisms determining the link exports and economic growth. HE ROLE OF EXPORTS IN ECONOMIC GROWTH HAS BEEN MUCH DEBATED Jessie P. Poon is an assistant professor of Geography at the University of Georgia, Athens. The author thanks two anonymous reviewers and Thomas Leinbach zyxwvu for their comments and suggestions. Submitted Jul. 1993; revised Nov. 1993. zyxwv 0 1994, Center for Business and Economic Research, University of Kentucky