A South-South Survival Strategy: The Potential for Trade Among Developing Countries

Abstract

Trade between developing countries, or South-South trade, has been growing rapidly in recent years following significant reductions in tariff barriers. However, significant barriers remain, and there is currently reluctance among many developing countries to undertake further reductions, instead preferring to focus on opening up access to developed country markets, or to maintain the status quo given that multilateral liberalisation may results in the erosion of preferential access enjoyed by some developing countries. This emphasis on Northern markets represents a missed opportunity for developing countries. To assess this we compare the potential effects of the removal of barriers on South-South trade with the gains from developed country liberalisation and from regional free trade areas within Africa, Asia and Latin America. A general equilibrium model, GTAP, containing information on preferential bilateral tariffs, is used to estimate the impacts. The results indicate that the opening up of Northern markets would provide annual welfare gains to developing countries of $24 billion. However, the removal of South-South barriers has the potential to generate gains 60 per cent larger. By contrast, the potential gains from further regional agreements on a continental basis are limited in Africa and Asia, although scope remains in Latin America. The results imply that giving greater emphasis to removing barriers between as well as within continents could prove a successful Southern survival strategy.

El comercio Sur-Sur y Sur-Norte: ¿Cuál contribuye más al desarrollo de Asia y América del Sur? Ideas a partir de la estimación de elasticidades-ingreso de la demanda de importaciones

“…El mejor desempeño de las economías en desarrollo y la brecha de crecimiento entre estas y las economías avanzadas convierten a las primeras en prometedores y atractivos mercados de exportación, en particular para los países en desarrollo con orientación al exterior. Fugazza y Vanzetti (2008) ( , 2011, pág. 50).…”

South-South trade and South-North trade: Which contributes more to development in Asia and South America? Insights from estimating income elasticities of import demand

“…The sheer growth performance of developing economies and the growth gap between them and the advanced economies make the former promising and appealing export markets, not least for outward-oriented developing countries. Accordingly, Fugazza and Vanzetti (2008) find that the potential gains from removing SouthSouth trade barriers would be considerably higher than those from opening up Northern markets (see also adb, 2011;imf, 2011, andWignaraja, Ramizo andBurmeister, 2012). Indeed, there has already been an impressive expansion of South-South trade, especially during the last two decades, with a higher rate of growth than world trade (Shirotori and Molina, 2009).…”

China’s Africa trade and investment policies: review of a “Noodle Bowl”

“…Protracted negotiations may reflect a study concluding that South-South trade agreements generate small benefits and greater trade diversion rather than trade expansion effects (Venables, 2003). Collective South-South trade liberalisation however has more recently been found to offer greater welfare gains to developing countries than South-North liberalisation (Fugazza and Vanzetti, 2008).…”