South-South Trade as a Source of Developing Countries

1
South-South Trade as a Source of Developing
Countries Gains

• Nora Dihel (OECD), Przemek Kowalski (OECD) ,
  Felix Eschenbach (Sciences Po) and Ben Shepherd
  (World Bank)
• OECD Global Forum on Trade A trade policy
  dialogue on the multiple dimensions of market
  access and development
• Mexico City, 23-24 October 2006

2
Overview

• What is the magnitude and development potential
  of South-South trade?
• Is South-South trade subject to higher barriers?
• What are the gains from South-South trade?

3
South-South Goods Trade Motivation Background

• North-South trade
• Comparative advantage
• Technological spillovers
• Size of Northern markets
• South-South trade
• Economies of scale and product differentiation
• High rates of growth high trade barriers
• Way of breaking into Norths markets for more
  advanced products
• WTO negotiations
• Aligned along the North-South divide
• Search for derogations from rules and commitments
  by some countries in the South
• Methodology for modelling South-South goods trade

4
South-South Goods Trade econometric results in a
nutshell

• Impact of tariffs and distance most negative for
  trade amongst Low and Lower-Middle Income
  countries
• Policy barriers are more important for
  South-South trade than for other trade flows
• 10 tariffs decrease 1.6 increase in exports
• Growth in South-South trade over the 1985-2002
  period not driven by the death of distance
• Geographical distance tends to impact South-South
  trade more strongly
• 10 distance increase 10 decrease in
  North-North trade
• 10 distance increase 17 decrease in
  South-South trade
• Conclusion considerable scope for reductions in
  protection and trade costs to bring about further
  growth in South-South trade

5
Simulation results distribution of welfare gains
form a worldwide removal of tariffs
total US 68 billion
Notation South-North indicates the gains that
originate in liberalisation by the South and
accrue to the North
6
Other simulation results

• More than 50 of gains from South-South tariff
  liberalisation captured by developing Asia
• 68 of the gains from South-South liberalisation
  in Asia are realised on a regional basis
• Exception China gains more than double as much
  from liberalisation of trade with Latin America,
  MENA and Sub Saharan countries
• In Latin America and Sub Saharan Africa the
  regional gains account for 45 and 39 of gains
  from South-South trade
• Conclusion only a part of gains from South-South
  trade could be realised through regional
  agreements, mainly in Asia

7
Services trade flows the South-South dimension
South-South 36
8
Services barriers Trade Restrictiveness Index
Banking
9
Impact of removing services barriers on
South-South services trade

• Effect of distance on services trade appears less
  strong than for goods trade
• Trade in services increases across all sectors
  following relaxation of restrictions on foreign
  establishments
• Same determinants of services trade intensity
  apply to South-South and other types of flows

10
Impact of services liberalisation on goods exports

• Two-stage link between (i) service sector
  openness and performance and (ii) service sector
  performance and goods exports
• Performance of backbone services sectors
  positively associated with total goods exports in
  developing countries
• The impact of services liberalisation on
  performance increases more than proportionally
  with the scale of the liberalisation measure
• Not enough to liberalise moderately to achieve an
  impact on performance if initial degree of
  restrictiveness is high

11
South-South Services Trade Main Conclusions

• Services trade between developing countries takes
  place predominantly at the regional level for all
  modes of supply
• Barriers for numerous developing countries are
  well above the OECD average in banking,
  insurance, telecommunication, distribution and
  engineering
• Little evidence of systematic differences between
  South-South and other types of services trade
• If services sectors are closed to foreign
  competition, the improvement of their performance
  requires a major rather than a small or moderate
  liberalisation effort

12
Thank you!

• przemyslaw.kowalski_at_oecd.org
• nora.dihel_at_oecd.org