The adding up problem

This paper presents empirical evidence pertaining to the"adding up problem"and the"fallacy of composition". It is shown that, rather than market constraint in the developed countries, export growth in the developing countries is largely determined by supply factors. Thus, the deceleration of economic growth in the developed countries after 1973 was accompanied by an acceleration of the growth of the exports of the developing countries. The findings of this paper have important policy implications. They support the views of those who advocate the application of outward-oriented policies in developing countries. This conclusion is strengthened if consideration is given to the possibilities of increased trade among the developing countries themselves. Finally, outward orientation promotes efficient import substitution through the reform of the system of incentives.