South South Trade in Goods

The empirical analysis presented in this paper indicates that trade between developing countries (South-South trade) offers a wide scope for specialisation and efficiency gains. The first part of the paper takes an ex-post perspective and employs the gravity methodology to contribute to understanding past trends in world goods trade with a special focus on South-South trade. Analysis shows that far from experiencing a death of distance, South-South trade is still severely constrained by distance-related trade costs and that reducing South-South tariff barriers can have a major impact on trade flows. The second part employs a computable general equilibrium model in a forward looking assessment of the balance of gains from multilateral trade liberalisation with a special focus on South-South trade. This analysis suggests that, from a development point of view, South-South liberalisation is at least as important as tariff-free market access to Northern markets.