International Economics

The Light at the End of the Tunnel: The South-South Locomotive

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 By Dr. Can Erbil | 22.03.2011


  • South-South Trade

In the aftermath of the global financial crisis, trade between developing countries (South-South trade[1]) has become more vital and more vibrant than ever.

financial_crisis1

“Just as developing countries are becoming increasingly important markets for high-income exporters, so too are other developing countries becoming more important destinations for the exports of developing countries.[2]”

“Between 1990 and 2008 world trade expanded almost four-fold, but South-South trade multiplied more than ten times.[3]”

“Since 1990, South-South trade has risen from 7 percent of total world trade to 18 percent [4], while North-North trade has fallen from 65 percent to 50 percent [5]”.

According to ITC’s latest figures, almost 45% of world trade is conducted by developing countries with nearly half of this trade categorized as South–South trade [6].

  • Switch over 

In addition to these increases in volume and share of trade, there have also been significant changes in the composition and destination of exports from the South (developing countries). Previously, South was mainly engaged in trade with North, selling them manufactured goods and commodities. More recently, especially after the crisis, South surprised the trade pessimists by not only being able to produce competitive, higher value-added products; but also increasing its own consumption of such products. The developing world can no longer simply be labeled as “poor” [7].

Scholars and practitioners believe that this new dynamic can go beyond helping the South. Developing economies now have the potential to “switch over” to become locomotives in the global economy. Similar arguments create new terminology like “reverse de-coupling” and “re-coupling” describing the increasing South-South synergy.

  • Beyond Gains from Trade 

When we take a closer look at the accelerating momentum of South-South trade, we find out that it offers much more than the standard efficiency and specialization gains of trade:

 

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