The link between exports and economic growth has been closely studied by economists, largely because of the results achieved by export-led growth in some countries. The theoretical basis for achieving growth through the development of export industries is that competition on an international scale requires efficiency, innovation and investment, all of which may encourage economic growth within a country. The development of export markets can lead to economies of scale as industries expand and develop their markets overseas in response to foreign demand. Industries may promote world-class skills in product design, research and development and marketing, which increase their export capacity and promote economic development in their own country. The promotion of international trade leads to free trade policies that promote exports from the country and attract direct foreign investment into local industries.
Vigorous export-led growth has been undertaken in a number of Asian countries by creating conditions in which exporters can develop their business. In some cases, special economic zones or free zones have been set up with favorable regulatory and tax incentives combined with modern infrastructure. Companies operating in certain sectors, such as export-oriented manufacturing or high-technology businesses, have been permitted to operate in such zones. Such locations have provided a setting within which enterprises may attract foreign investment and develop efficient and innovative processes to compete on an international level. These zones may offer reductions or exemptions from customs duties on raw materials and equipment that are imported for incorporation into goods for export.
The development of export industries may enable a country to increase specialization in those activities in which it has a comparative advantage and increase total production in the economy as a result. By increasing markets for their goods, enterprises may increase their production levels and take advantage of economies of scale to increase efficiency. Technology developed or acquired for competition on an international scale may be used domestically to increase efficiency of production and lower costs. Another link between exports and economic growth is, therefore, the encouragement of specialization and more efficient use of a country's resources.
Government policies developed to increase international trade may have beneficial effects on the economy, once again linking exports and economic growth. The low tariff policies agreed on with other countries may mean that low-cost imports enter the domestic market, increasing choice for consumers and spurring domestic industries to lower costs and increase efficiency. The general reduction in the cost of goods and the growth in national income can lead to an increase in the population's well being and an increase in tax collections for the government. This enables government investment in infrastructure to further increase international competitiveness. Government policy may, therefore, be directed toward increasing exports and economic growth by creating a favorable business environment.
