The Relationship Between the Level of Domestic Demand in Britain and the Exports of the British Motor Car Industry

Abstract

This thesis examines possible links between fluctuations in the level of domestic demand in Britain, especially between 1955 and 1968, and the level of exports of the British motor car industry. Two relevant hypotheses are considered, one related to the short run, the other to the long run. Firstly, the "Internal Pressure Hypothesis" postulates that, in the short run, home sales and export sales are inversely correlated and that Government measures that restrict home demand cause exports to rise. A theoretical approach and an aggregate study fail to substantiate the hypothesis and it is thought desirable to examine it in the light of the experience of an individual industry. The motorcar industry is ideal for this because of the distinguishable relationship between Government policies and home demand. However, an examination of the period 1955-1968 reveals little evidence to support the hypothesis and reasons for this are examined. Secondly, the "Export with Growth Hypothesis" postulates that a depressed home market has an adverse effect on exports in the long run. The theoretical links between internal growth and export performance are examined. It is suggested that, in practice, many factors influence exports and that market distribution, the size and growth of individual companies and their model policies have had an important influence. Fluctuations in home demand offer only a partial explanation of the relatively poor export performance of the British motor car industry. Arguments for the need of a strong home market are considered and little evidence is found that a stagnant home market has had a permanently damaging effect on exports. A counter argument that a restricted home market may have stimulated beneficial structural changes in the industry is considered. Finally the effects of devaluation are examined and it is suggested a substantial rise in exports has been achieved despite the restriction imposed on home demand. Under these circumstances, control of internal pressure and growth are reconciled.