South‐South trade is the fastest growing segment of world trade in the last two decades. This paper aims at demonstrating that it is a unique opportunity and a sound development tool for developing countries.
The paper describes the statistical and empirical evidence from a macroeconomic and microeconomic viewpoint, and discusses the policy options developing country governments face to promote South‐South trade and investment.
Not all regions, countries, products and services fare equally in the current state of play. That South‐South trade expands at a much faster pace than other trade, although it is subject to higher barriers and higher distance‐related costs, suggests that addressing trade facilitation issues is of the essence for future progress, including major investments in trade‐related infrastructure, like the modernization of air and water ports, roads, transport and customs services.
South‐South trade expansion is a market‐driven development – mostly resulting from the widespread operation of international supply chains of the South – that may be enhanced by government intervention but seldom spearheaded by it in the long run.
The “natural” next questions are whether South‐South trade can be an alternative to North‐South trade, whether the learning process for international trading is enhanced or retarded by it, and whether the proliferation of PTAs is strangulating progress in rules‐based multilateralism, the first‐best choice according to mainstream economic theory. Even more important in development terms is whether South‐South trade can help bring developing countries, small‐ and medium‐sized enterprises (SMEs) and the poor into the export process or, rather, it is a distraction from the real targets. This paper suggests there are robust answers to these queries already.
