EXPORT SUPPLY, CAPACITY AND RELATIVE PRICES

It is sometimes argued that strong export growth in developing countri es occurs mainly in the presence of large unemployment of domestic res ources, with price reforms playing a relatively minor role. We investi gate the relative contribution to export growth of improved profitabil ity and reduced capacity utilization rate. The conditions under which domestic demand and capacity utilization may affect export supply are derived from a choice-theoretical model of the firm. Our empirical ana lysis focus on the cases of Morocco and Turkey. Our results indicate t hat both prices and capacity are significant determinants of export su pply. Counterfactual simulations suggest that for Turkey lower capacit y utilization played a crucial role in fostering export growth in the 1976-1980 period, whereas improved export profitability takes most of the merits of export expansion afterwards. For Morocco, the contributi on of relative prices to export growth appears to be modest.