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1 South-South Trade as a Source of Developing Countries Gains Nora Dihel (OECD), Przemek Kowalski (OECD), Felix Eschenbach (Sciences Po) and Ben Shepherd.

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Presentation on theme: "1 South-South Trade as a Source of Developing Countries Gains Nora Dihel (OECD), Przemek Kowalski (OECD), Felix Eschenbach (Sciences Po) and Ben Shepherd."— Presentation transcript:

1 1 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, October 2006

2 2 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?

3 3 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 Norths 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

4 4 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 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

5 5 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

6 6 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

7 7 Services trade flows – the South-South dimension South-South 36%

8 8 Services barriers – Trade Restrictiveness Index Banking

9 9 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

10 10 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

11 11 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

12 12 Thank you!


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