Bilateral trade of geographically distant countries is likely to be negatively affected by the distance separating them from their trading partners and positively affected by their remoteness, defined as the average weighted distance between two countries with weights reflecting the absorptive capacity of the partner country. In presence of competitive transport costs, the effect of remoteness and distance is diluted. An augmented gravity model applied to the Pacific islands' bilateral trade from 1980 to 2004 shows that a doubling of the elasticity of distance would decrease their average bilateral trade by 80 per cent. Remoteness positively affects the Pacific islands' bilateral trade, but does not compensate for the negative effect of distance. The opposite is found for the Caribbean islands, where the elasticity of trade with respect to remoteness is eight times bigger than that for the Pacific islands.

From the creation of the category in 1971, the number of least developed countries (LDCs) has almost doubled to account for 48 members by 2011. Only three countries have managed to exit from the category thus far, and two more are in the pipeline. The recognition of the difficulty of leaving the category is entrenched in the overarching goal of the Fourth UN Conference on LDCs, which specifically calls for halving the number of LDCs within the next decade. The existing asymmetries between the entrance and the graduation criteria have favoured inclusion. Of the three exit criteria, those countries that have graduated, or are in the process of doing so, have all met the low-income exit threshold. This study argues for a graduation path that is not linked to income performance, rather on human capital development. In so doing, it identifies a different, non-conventional route to graduation. Bangladesh makes a good example for it as it is through the development of its human capital assets that it could (a) stop being an LDC and (b) accelerate its rate of economic and income growth. If the appropriate human capital enforcement policies are implemented in the coming 22 years, Bangladesh could meet the graduation thresholds by 2027, graduate out of the LDC group in 2033 and keep all the benefits linked to the LDC status until 2036. At the domestic level, actions aimed at leaving the LDC category have to be framed by, and within, a national employment-generating strategy. The article concludes with specific policy recommendations, particularly related to human capital development, for nearing the estimated graduation date. JEL: O10, O29, O53

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The International Trade Working Paper series promptly documents and disseminates reviews, analytical work and think-pieces to facilitate the exchange of ideas and to stimulate debates and discussions on issues that are of interest to developing countries in general and Commonwealth members in particular. The issues considered in the papers may be evolving in nature, leading to further work and refinement at a later stage. The views expressed here are those of the author(s) and do not necessarily represent those of the Commonwealth Secretariat.