Technical Paper Series 

Congressional Budget Office 

Washington, DC

LARGE FOREIGN MARKETS 

AND 

EXPORT-LED GROWTH 

IN DEVELOPING COUNTRIES 

Ufuk Demiroglu 

Congressional Budget Office 

Washington, DC 

E-mail: ufuk.demiroglu@cbo.gov

August, 2003 

2004-10 

Technical papers in this series are preliminary and are circulated to stimulate 

discussion and critical comment. These papers are not subject to CBO’s formal 

review and editing processes. The analysis and conclusions expressed in them are 

those of the authors and should not be interpreted as those of the Congressional 

Budget Office. References in publications should be cleared with the authors. 

Papers in this series can be obtained at www.cbo.gov (select Publications and then 

Technical Papers). 









Figure 1.

Price of Investment Relative to Consumption

(1997 = 0)

Source: Penn World Tables 6.1.

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998

0

20

40

60

80

100

120

140

160

Taiwan

Korea
Figure 2.

Imports and Investment in Korea

(Percentage of GDP)

Source: Penn World Tables 6.1.

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998

0

5

10

15

20

25

30

35

40

45

Imports

Investment








Figure 3.

The Isoquants for Both Old and Modern Technologies

Note: The isoquants show, for a given variety z, the factor input combinations needed to produce L units of z. The variables lz and kz are labor 

and capital employed in sector z. If is greater than min (as shown), the new technology is too expensive to be profitably adopted 

by the developing country in autarky.

K K








Figure 4.

The Phase Diagram for the Dynamics of the Economy After the Industrialization 

Period

Note: The economy is at point A at time T, at the end of the industrialization period. The line with arrows shows the path of convergence to 

the steady state. C is consumption; K is the capital stock.

Ct

Ct = 0

Kt = 0

Kt

A CT

K
Figure 5.

Simulation Results for the Time Paths of Variables of the Model in Response to 

Unanticipated Trade Liberalization at Time t = 0: the Case of Large Developing 

Country with L = l1 > Lc

Note: w is the wage rate, s is the share of sectors that have adopted the new and better technologies, IM/Y is ratio of imports to GDP, Y is 

GDP, r is the interest rate, C is consumption, I is investment, L is the labor force, and K is the capital stock of the developing country.

I

Figure 6.

Simulation Results for the Time Paths of Variables of the Model in Response to 

Unanticipated Trade Liberalization at Time t = 0: the Case of Large Developing 

Country with L > l1 > Lc

Note: w is the wage rate, s is the share of sectors that have adopted the new and better technologies, IM/Y is ratio of imports to GDP, Y is 

GDP, r is the interest rate, C is consumption, I is investment, L is the labor force, and K is the capital stock of the developing country.

I

Figure 7.

Simulation Results for the Time Paths of Variables of the Model in Response to 

Unanticipated Trade Liberalization at Time t = 0: the Case of Large Developing 

Country with l1 > L > Lc

Note: w is the wage rate, s is the share of sectors that have adopted the new and better technologies, IM/Y is ratio of imports to GDP, Y is 

GDP, r is the interest rate, C is consumption, I is investment, L is the labor force, and K is the capital stock of the developing country.

I

Figure 8.

Simulation Results for the Time Paths of Variables of the Model in Response to 

Unanticipated Trade Liberalization at Time t = 0: the Case of Large Developing 

Country with l1 > Lc > L

Note: w is the wage rate, s is the share of sectors that have adopted the new and better technologies, IM/Y is ratio of imports to GDP, Y is 

GDP, r is the interest rate, C is consumption, I is investment, L is the labor force, and K is the capital stock of the developing country.

I


Figure 9.

Japanese Manufacturing Exports and 

Output

(Percentage of net domestic product)

(Percent)

Source: Ohkawa and Shimomura (1979), pp. 18, 35, and 135.

1887 1897 1904 1911 1919 1930 1938 1953 1969

0

5

10

15

20

25

Manufacturing Exports

1887 1897 1904 1911 1919 1930 1938 1953 1969

0

5

10

15

20

25

30

35

40

Manufacturing Output Share