Pedro Lains, Univeristat de Lisboa and Brown University

In 1850, Portugal was one of the poorest countries in Western Europe. The fact that her economy expanded, in per capita terms, at an annual rate of growth of about 0.8% meant that, by 1914, the relative position of the country, in levels of GDP per capita, had not changed considerably.

As most underdeveloped countries, Portugal's 19th century historiography has its dependence theory heritage. According to that theory, Portugal's industrialization was hindered by foreign economic relations with Great Britain, Portugal's major trade partner throughout the 19th century. The story is the following: to be able to export agricultural products to the British market, the Portuguese Government had to reduce import tariffs, from 1852 onwards. With the domestic market open to British industrial products, Portuguese industry could not expand, and the country remained agricultural and poor. Following the same line of reasoning, the agricultural sector did expand, taking advantage of the British market. But from the 1880s, increasing competition from other Southern European countries and, more importantly, from South America and other areas of recent settlement, implied a loss of the markets for agricultural products. As the Portuguese industry had not developed, the domestic market remained stagnant and, consequently, the agricultural sector could not redirect its exports towards domestic demand.

The thesis of dependence, here introduced very succinctly, as it applies for the case of Portugal, has a considerable amount of flaws. Some of the postulates simply do not fit the facts, as they have been investigated. However, the fact of the matter is that the thesis is still very popular among general readers of the economic history of underdeveloped countries. The purpose of the present paper is to deal with such a theme, in order to contribute to a revision of that thesis. That revision is based on new data on: tariff levels; trends, fluctuations, composition and geographical distribution of exports; and on industrial and agricultural output growth.

The paper also deals with another set of theories which relate exports to economic growth, namely, export-led growth theories. According to these theories, export may promote economic growth because it enhances a country's productivity levels by providing the incentive to invest in the sectors of the economy where domestic factors of production are more productive. Furthermore, exports would provide the means for contact between domestic producers and more demanding foreign markets, leading to intangible benefits related to the transmission of expertise and knowledge.

The assumptions behind export-led growth theories, where open markets and international specialization appear as factors of growth, are the opposite of those of the dependence theories. In fact, according to the latter, closed markets and import substitution promote growth. An old debate that still deserves some attention.

However, even though the two theories or models set above depart from different assumptions, the fact is that both the dependence and the export-led growth theories have one important point in common: both postulate that the rate of economic growth of a less developed country can me enhanced by a right choice of policy measures, being it free trade or high protective tariffs.

The present paper questions that assumption. A successful economic policy depends on the economic growth potential of the country at which the policy is aimed. This point is made by surveying the examples of the Scandinavian countries. These countries had high rates of growth of income per capita as well as of exports, thus being good examples for testing export-led growth theory. Evidence showing that export growth followed economic growth, and not the other way round is presented.