Is South‐South trade the answer to alleviating poverty?

Abstract

PurposeSouth‐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.Design/methodology/approachThe 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.FindingsNot 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.Practical implicationsSouth‐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.Originality/valueThe “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.

Developing Africa: Trade barriers, liberalization and inequality in the World Trade Organisation

“…Firstly, it is commonly accepted that free trade leads to prosperity for the state. However, Agatielo (2007Agatielo ( : 1256 maintains that while no country has ever consolidated its socio-economic development by rejecting international trade and long-term capital inflows, no country has achieved it by opening up foreign trade and investment alone either.…”

“…Tupy (2005: 6-12) maintains, however: i) That liberalization in high-income countries would benefit the developing countries less than liberalization in developing countries; ii) That Sub-Saharan Africa is one of the world's most protectionist regions; iii) That the case against trade liberalization in Africa is made despite rapid economic growth experienced by relatively open African countries, such as Botswana and Mauritius; iv) That trade preferences particularly, "special and differential treatment", on their own do not help economic growth in SSA; v) That the disappointing export performance by many developing countries is as a result of domestic conditions, such as political instability and regulatory restrictions, for instance, lack of expansion preventing such countries from meeting export quotas, and inefficient production; and hence vi) That trade liberalization needs to be followed by domestic reforms, which are necessary to ensure that capital remains in SSA and is put to productive use. Agatielo (2007Agatielo ( : 1256 maintains that while no country has ever consolidated its socio-economic development by rejecting international trade and long-term capital inflows, no country has achieved it by opening up foreign trade and investment alone either. Panagariya (2003: 2) remarks that although trade openness is necessary for rapid growth, it is not sufficient by itself.…”

South–South trade: An analysis of trade integration in the G‐77

“…The expansion of South-South trade is the result of a convergence of factors, such as the economic growth of developing countries against a lower economic growth on the part of developed countries 7 -particularly China's growth that increased the demand for products and services from other developing countries, in addition to the average tariff reductions since the Uruguay Round, and the deepening and/or establishment of regional trade agreements (Agatiello, 2007;WTO, 2014). The 2008 global financial crisis also accentuated the upward trend in South-South trade, reinforcing these factors.…”

Twenty‐five years of management research on poverty: A systematic review of the literature and a research agenda

“…Research emphasizes that trade has helped fight poverty, while depicting that countries have not all benefited equally (Agatiello, 2007), raising issues of inclusiveness and fairness. The gender gap is also suggested to indirectly hinder trade performance (Blowfield & Dolan, 2010;Thierry, 2007).…”