South-South Trade: Theory, Evidence, and Policy

Recently a number of commentators have argued that trade policy in developing countries should be deployed discriminatorily to encourage the expansion of trade among southern countries. Such a strategy is seen as being central in the framing of a new international economic order. This article evaluates the arguments in favor of a relative expansion of South-South trade and reviews the experience of developing countries with discriminatory regional trading arrangements. It contends that the case for specific policies to promote South-South trade is not convincing and that experience with discriminatory arrangements is not encouraging. The expansion of South-South trade can be expected to continue in the context of multilateral trade expansion, and the potential gains are likely to be greater if this process is allowed to evolve freely in a multilateral setting.