Endogenous supply side constraints to export-led growth and aggregate growth implications in transition economies

This paper analyses the endogenous limits to export-led growth inherent in an economy's supply side. The supply side determination of export growth relates it, as well as the cross-sectoral subsidy, to the economy's industrial structure and difference in productivity growth between sectors. Starting off from fixed sector sizes we endogenise the relation between sector sizes and the productivity growth differential and highlight an economy's structural flexibility. We also highlight the differing implications for the economy from whether a widening productivity growth gap is due to higher productivity growth in the tradable sector or lower productivity growth in the non-tradable sector. When analyzing a transition economy's ability to transform differences in productivity growth into aggregate growth we find a highly context specific relation. We show how transition might be characterized by aggregate growth exceeding tradable sector productivity growth or vice versa depending on the combination between industrial structure, the prevailing incentives for structural change and the ability to take advantage of such incentives. We identify tipping points for endogenous phase shifts where aggregate growth changes from accelerating to diminishing growth and vice versa.