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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

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south south trade as a source of developing countries gains

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

overview
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?
south south goods trade motivation background
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 North’s 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
south south goods trade econometric results in a nutshell
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
simulation results distribution of welfare gains form a worldwide removal of tariffs
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

other simulation results
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
impact of removing services barriers on south south services trade
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
impact of services liberalisation on goods exports
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
south south services trade main conclusions
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
thank you

Thank you!

przemyslaw.kowalski@oecd.org

nora.dihel@oecd.org