Economic Development and South-South Trade

The dissertation focuses on trade among developing countries, or South-South trade. Although South-South trade has been advocated as an alternative to North-South trade, few studies that attempt to gauge its benefits exist. The first chapter presents an analysis of the literature on South-South trade. I argue that analyzing South-South integration from the perspective of static 'trade diversion' versus 'creation' elements or even the so-called dynamic 'building' or 'stumbling blocks' that characterizes much of the mainstream literature on regionalism is insufficient. Instead I focus on the literature that has dealt with South-South integration and trade per se and their relation to development within the countries of the South. The literature can be divided into two waves, the first emerging from early development economics and the second dealing with the factor content of South-South trade. Despite being conceptually different, the two waves share the common themes of advocating South-South trade based on self-sustaining growth and indigenous technological development. I also review the implications of the uneven development literature on South-South trade. In the second chapter, South-South trade in medium to high skill intensive is analyzed in a sample of 20 developing countries. Previous studies have demonstrated that South-South trade in manufactures is human capital intensive but no verification of the benefits exists. In this chapter, the impact of direction of trade on developing country performance in skill intensive manufactures is investigated. For each developing country in the sample, an annual time series is generated of both exports and imports in a) total trade; b) trade in total manufactures (SITC 5-8); c) as well as trade in a set of 75 medium to high technologically (skill) intensive manufactures. This is done for trade in both directions with a set of countries classified as 'North' as well as the rest of the world, classified as 'South.' Empirical tests indicate that direction of trade has mattered and that South-South trade has had a positive impact on developing country performance in the skill intensive manufactures as measured by a time series of Revealed Comparative Advantage indices. In the last chapter, the impact of the Revealed Comparative Advantage indices on income levels and income growth is estimated. The goal is twofold: First to make a contribution to the cross-country empirical literature by focusing on structure of trade rather than overall trade as a relevant factor in growth. Second to provide an indirect link between South-South trade and growth in developing countries. Results indicate that the Revealed Comparative Advantage indices to have a positive impact on growth in the country sample above and beyond the impact of overall trade.