Can South-South trade Liberalisation Stimulate North-South Trade ?

This paper uses a combination of Ethier (1982) and Melitz’s (2003) models to show that liberalizing trade among developing countries, so-called South-South trade, could contribute to improve the access to international markets of developing countries’ would-be exporters. Lower trade barriers among developing countries has the effect of lowering the price of intermediate inputs and eventually allows exporters in those countries to serve international markets. We also compare unilateral and multilateral South-South trade liberalization and find that the latter unambiguously reduces the price of intermediates in all participating countries, whereas the former has ambiguous effects.