Gains from export growth: do linkages matter?

Abstract

Policy makers in developing countries often place emphasis on inter-sectoral input linkages (‘linkages’ for short) in determining sectoral priorities in export development policy, particularly in designing export promotion schemes and in screening and monitoring export-oriented foreign direct investment. Development analysts too place emphasis on linkages as an operational norm in assessing the developmental impact of emerging export industries. The purpose of this paper is to argue that the use of this closed-economy planning tool as a performance criterion in the context of exportoriented growth strategy is fundamentally flawed. We illustrate our argument using Indonesia as a case study. The methodology adopted involves the examination, using the Leontief inter-industry accounting framework as the main analytical tool, of the relationship between sectoral input linkages, and employment impact and contribution to net foreign exchange earnings of manufactured exports in Indonesian manufacturing during 1985-95.