During the past two decades, an increasing number of
developing countries have sought to pursue export -oriented trade and
industrial policies as against the import -substitution strategy of
industrialization.1 It has been argued that production for the world
market not only restores the momentum of industrial growth but it leads
to efficient resource allocation, greater capacity utilization, permits
the exploitation of economies of scale, generates technological
improvement in response to competition abroad and, most importantly,
creates productive employment opportunities for a labour-surplus country
[Balassa (1978), p. 180). This paper is not concerned with the merits or
otherwise of export -oriented trade and industrialization policies
rather we concentrate on the most important contribution of outward
looking or export-oriented policy, i.e., its employment creation
effects. It has been argued that an increased level of activity in the
export sector gives rise to dynamic external economies of scale besides
having its own direct effect. For example, an increase in exports
creates jobs for workers directly engaged in the production of the
export commodities. This being the direct effect, an increase in exports
also creates employment via the linkage effect, multiplier effect and
foreign exchange effect.2 A large number of studies over the last two
decades have attempted to measure the direct and indirect contributions
of exports in employment creation in developing countries.3 Almost all
studies have used static input-output analysis to quantify the
contribution of exports in employment generation.
FDI, Multinationals, and Structural Change in Developing Countries
