A South-South Survival Strategy: The potential for trade among developing countries

Trade between developing countries, or South-South trade, has been growing rapidly in recent years following significant reductions in tariff barriers. However, significant barriers remain, and there is currently reluctance among many developing countries to undertake further reductions, instead preferring to focus on opening up access to developed country markets, or to maintain the status quo given that multilateral liberalisation may results in the erosion of preferential access enjoyed by some developing countries. This emphasis on Northern markets represents a missed opportunity for developing countries. To assess this we compare the potential effects of the removal of barriers on South-South trade with the gains from developed country liberalisation and from regional free trade areas within Africa, Asia and Latin America. A general equilibrium model, GTAP, containing information on preferential bilateral tariffs, is used to estimate the impacts. The results indicate that the opening up of Northern markets would provide annual welfare gains to developing countries of $24 billion. However, the removal of South-South barriers has the potential to generate gains 60 per cent larger. By contrast, the potential gains from further regional agreements on a continental basis are limited in Africa and Asia, although scope remains in Latin America. The results imply that giving greater emphasis to removing barriers between as well as within continents could prove a successful Southern survival strategy.