HIST363: Global Perspectives on Industrialization

The framework outlined above provides a potential basis analysis of changes in the structure of the economy in general, and resource dependence in particular. Such a framework is vitally needed, as there have been dramatic changes in the composition of exports from developing countries during the past twenty years.

The extent and rapidity of these changes is highlighted in Figure 1, which shows that developing countries as a group have reduced their reliance on exports of agricultural and mineral commodities. In the late 1970s, agricultural and mineral commodities accounted for close to three quarters of exports from developing countries. By the late 1990s, this share had fallen to less than a fifth.

Figure 1. The Changing Pattern of Merchandise Exports from Developing Countries

Shares in Merchandise Exports of Developing Countries

As is clear from the data presented in Appendix Table 1, the decline in the importance of resource-based products has not been confined merely to a few countries. Manufactures have become the dominant exports of a wide range of developing countries. Even countries in Sub-Saharan Africa such as Malawi, Mozambique, Tanzania, Zambia and Zimbabwe have increased the share of manufactures in their total exports to the point where manufactures make up almost a quarter of the exports of the group.

To ensure that the changes in Figure 1 reflect changes in output volumes, rather than simply changes in product prices, the commodity output shares were re-estimated in 1965 prices using deflators from the World Bank's Development Prospects' Group. Specifically, agricultural exports were deflated by the World Bank's index of agricultural product prices for developing country exports; mineral exports were deflated by the price of oil; and manufactures export prices were deflated by the UN Manufactures' Unit Value index. The resulting commodity shares are presented in Figure 2. 

Figure 2. Change in Developing Country Export Shares at 1965 Prices

Quantity Shares in Merchandise Exports of Developing Countries

The numbers presented in Figure 2 show that the changes in the composition of developing country exports have been the result of shifts in the quantities of exports they produce, rather than solely in the prices received for outputs. This figure shows that the increase in the importance of manufacturing exports began in earnest in the 1970s, rather than the 1980s as suggested by the graph in nominal values. The dramatic increase in the price of oil, and hence the share of minerals, during the 1970s obscured this fundamental shift in Figure 1. 

Developing countries' dependence on exports of resource-based products has been further reduced by an increase in the importance of services exports. Figure 3 presents data on the shares of commercial services in the exports of goods and services from major country groups. While these numbers are the only ones available as a time series, they appear to considerably understate the importance of services exports.

Karsenty estimates that this category of services now accounts for only around 60 percent of the total exports of services covered by the four modes of the General Agreement on Trade in Services (GATS). In the early 1980s, commercial services made up 17 percent of the exports of high-income countries - a share that has since risen to 20 percent (shown as High in the Figure). In the low and middle income group (LMC in Figure 3), services trade started out much less important, at 9 percent, but rose much more rapidly, to 17 percent. Amongst the relatively poor countries of Sub-Saharan Africa (SSA), the share also grew rapidly, from 10 to 15 percent.

Figure 3. Services as a share of total exports of goods and services

Shares of Services in Total Exports

A key challenge is clearly to understand and explain the changes in the structure of output and exports that underlie these sharp changes in the structure of exports from developing countries. These changes are so profound and rapid as to call into question much previous discussion of developing country trade policy, which typically sees developing countries as reliant almost exclusively on exports of agricultural and natural resource products.

Clearly, the policy implications for reducing resource dependence, and for development policy more generally, will differ greatly depending upon the causes of this dramatic change. In the next three sub-sections of the paper, we examine the available evidence on the factors most likely to influence the composition of exports. Changes in factor endowments are considered first, followed by changes in protection policy. Finally, the role of technological advance is examined.