The "Exportable Surplus" Approach to Foreign Trade in Underdeveloped Countries

TLDR: A study of Brazil's export stagnation during the postwar period revealed that a major cause lay in government policy discriminating against exports of products other than coffee as discussed by the authors, which was done through overvaluation of the export exchange rate for such products, and when this was not enough to deter exportation, through the imposition of export quotas and outright prohibitions.

Abstract: Many models of trade and development are based on the assumption that an underdeveloped country's exports are determined exogenouslyfor example, in accordance with the growth of world demand-or in any case independently of the country's own policy actions.' This assumption may be useful for many analytical and policy purposes, but it is important to point out that in some cases, other models of export determination may be relevant. For instance, a study of Brazil's export stagnation during the postwar period revealed that a major cause lay in government policy discriminating against exports of products other than coffee.2 This was done through overvaluation of the export exchange rate for such products, and when this was not enough to deter exportation, through the imposition of export quotas and outright prohibitions. As a result of these policies, the proportion of primary production that was exported rather than consumed domestically dropped sharply. The quantum decline in exports of these products accounted for the failure of aggregate Brazilian exports to increase much during this period. This is not the familiar case in which an underdeveloped country attempts to restrict supply of a commodity in which it has a degree of oligopolistic power in the world market, and indeed the policy applied only to products in which Brazil clearly had no market power. Rather, government discrimination against exports stemmed from the policy makers' special "exportable surplus" attitude to trade.3 Following this approach, a country exports only the "surplus" which is "left over" after the domestic market has been "adequately" supplied. Domestic demand takes priority, however, and must be supplied even if internal prices are lower than world market prices. Such an "exportable surplus" approach leading to discrimination against exports has apparently not been limited to Brazil.4 A similar mentality seems to have influenced export policy in other less developed countries during the postwar period, for example, in Argentina, Colombia, and India, and for particular commodities, such as rice, in Egypt and