South-South Trade and Finance in the Twenty-First Century:
Rise of the South or a Second Great Divergence?

This book unpacks the glib assumptions made by standard discussions of "South-South co-operation" to reveal a much more complex, nuanced and uneven dynamic process in which power relationships and political economy considerations matter crucially. The economic rise of some countries has both positive and negative implications for other countries of the Global South - how to make the outcomes more mutually beneficial is the critical question that the authors explore. Important reading for anyone who wants to understand current global economic realities.

Jayati Ghosh, Professor of Economics, Jawaharlal Nehru University, New Delhi, India. 

Omar Dahi and Firat Demir have produced a first-rate study of the constraints and possibilities of trade and finance for the Global South. Nose to the figures technical knowledge is combined with smart analytical work to deliver one of the best and most readable accounts of maldevelopment in our times. This is the kind of book that, I hope, would resuscitate Development Economics. Given that the authors predict the opening up of a Second Great Divergence, and that they have proposals to prevent it, this book is for billions of people a matter of life and death.

Vijay Prashad, George and Martha Kellner Chair in South Asian History and Professor of International Studies at Trinity College, USA.

South-South cooperation was once viewed as a major component of an alternative and more equitable route to development for the marginalized countries of the global economy facing the inequities of North-South economic relations. With the rise of the emerging South, a large group of semi-industrial or newly industrialized countries in the global economy, does this promise still hold? Or will the widening of economic disparities within the global South continue and result in a second great divergence, this time between the emerging South and the rest of the South? In this book, Omar Dahi and Firat Demir address these fundamental questions through what is probably the most comprehensive and deep analysis to date of the past and present as well as the likely and desirable futures of South-South economic relations.

Jaime Ros, Professor of Economics, The National Autonomous University of Mexico (UNAM); Professor Emeritus of Economics and Faculty Fellow of the Kellogg Institute for International Studies, University of Notre Dame.

South-South economic relations, including trade, has become and will continue to be, a major element of the global economy. This timely and pioneering book presents and discusses a large mass of data, analytical perspectives, and political economy analysis, to document and dispassionately evaluate such interactions, and to contribute towards how they can serve to promote just and equitable global development. Highly recommended for those interested in development and international political economy.

Amitava Krishna Dutt, Professor of Economics and Political Science, Fellow Kroc Institute for International Peace Studies and Kellog Institute for International Studies, University of Note Dame, USA

A comprehensive and timely overview of trade and development-related thought from the classical theories to "New-Developmentalism," complemented by an impressive array of statistics and empirical analysis. As challenges to globalization rise, this book will serve as a useful resource for academics, policy makers, and citizens interested in data-based thinking about the big picture issues.

Arslan Razmi, Associate Professor of Economics, University of Massachusetts-Amherst, USA.

Link.

List of Figures

List of Tables

Preface

Acknowledgments

Chapter One Introduction to South–South Relations

Chapter Two South–South Relations in Their Historical Context

Chapter Three Theoretical Frameworks and Emerging Trends

Chapter Four Empirical Analysis of the Structure of Trade and Finance

Chapter Five Stopping a Second Great Divergence: A New Framework for

South–South Relations

Chapter Six Concluding Thoughts

Appendix

References

Index

PREFACE

Tolstoy wrote in Anna Karenina that “All happy families are alike; each unhappy family is unhappy in its own way.” This is a book about the unhappy families. The Southern countries, also called developing, un(der)developed, semi-developed, periphery, the Rest, Third World, etc., are more than ever at the center of attention in the world economy and are shaping the new world order for the 21st century. China, India, South Korea and Brazil have become pivotal players in the new era of global production and trade and are increasingly assertive of their newly gained powers in world politics. Other countries of the South seek similar economic gains and more active roles. The rise of the Southern countries has also led to renewed calls for strengthening cooperation among these countries. In fact South-South cooperation has even become a buzzword to represent anything and everything the North-South economic and political exchanges are (and were) not. 

We have written this book to explore both the possibilities and the limits of South-South cooperation in the 21st century. In doing so, we aimed at two goals. First, we wanted to provide an overview of the historical and theoretical context of the South-South cooperation. Second, we wanted to look beyond the “knight in shining armor” vs. “dark lord of the east, Sauron” narratives of the rise of the South that we find too often in academic and popular writings. By re-examining the evidence from South-South and South-North economic exchanges, we hope to strip the debate of the excessive pessimism or optimism that biases most analyses of the subject. 

Our main premise is that the new multipolarity in the world economy is found within the global South as well as between the North and the South. The rising Southern powerhouses of the world economy, such as the BRICS (Brazil, Russia, India, China, South Africa), have had diverse effects on the rest of the developing world, and in this way they appear to replicate the North-South dilemmas and ominous contradictions for the countries we refer to as the Rest of South. Changing the course of this pattern of South-South exchanges requires an honest discussion of the effects of the Emerging South on those countries that continue to struggle for a decent life, in some cases simply for survival.     

The book came out of our earlier work on South-South economic exchanges, and in many ways it reflects changes in our analysis of the costs and benefits of South-South economic cooperation. Over the years, our earlier optimistic attitude has given way to a more cautious one. Particularly, the low-growth and low-development trap in which most Southern countries got stuck after decades of Washington Consensus experimentation seems to us not to be releasing its grip on those countries in the new multi-polar world. On the contrary, the rise of a few Emerging South countries appears to have a regressing effect on decades of industrialization efforts of other Southern countries.  Changes in trade structures – the skill and technology intensity of products, industrial structure, product and country dispersion, direction and other aspects that form a country’s international trade – along with increasing primarization of Southern economies, i.e., an emphasis on exporting raw materials and natural resources rather than manufactured goods, are warning signs for the coming years. Unhappy families indeed. 

This book is also influenced by our increasing discontent with the new mainstream development analysis that has emphasized micro-development goals based on representative agents and controlled experiments. The lack of any upward mobility in a majority of Southern countries and the unsustainable nature of most industrialization efforts in leading South countries --concerns ignored or unresolved by much of the mainstream discussion -- have helped shape the general framework of this book. However, despite these serious causes for concern, we find reason to hope for a new world economy that is more pluralistic and that allows more experimentation in economic policy. Decades of one-size-fits-all orthodoxy are giving way to a more agnostic, less arrogant and more pluralistic economic policy in the South, one that may eventually yield more equitable distribution of the world’s wealth while protecting its peoples and resources. 

In a nutshell, the book makes the following main points:  

1. The nature of South-South cooperation has changed over time and continues to change.  It is important to understand how.

2. The treatment of economic theory of South-South cooperation and integration has also changed over time. We describe these changes, along with the similarities and differences between various schools of thought toward South-South economic exchanges, and discuss their implications for ongoing debates about global economic development.

3. Certain stylized facts and patterns of change in South-South economic exchanges in trade and finance are instructive in analyzing realistically the present state of the economies of countries in the South and those countries’ prospects for the future.

4. The widely touted rise of the South is not a homogenous or linear process, and not all Southern countries have benefited equally from it.  The rise of the Emerging South has created both positive and negative prospects for development in the Rest of South. 

5. The 55 countries we identify in the Emerging South account for 65 per cent of the world’s population – 4.7 billion people – while 157 mostly smaller and poorer countries in the Rest of South account for 1.6 billion people, or 22.6 per cent of the world’s population.  While the economies of the former are growing, many of the latter continue to struggle, even to slide backward. We need to identify the necessary conditions to make South-South exchanges mutually beneficial, allowing for the sharing of knowledge, the upgrading of skills and the enhancement of development in the entire South, not just a part of it.

List of Figures

Chapter 3:

Figure 3.1: Number of preferential trade agreements by country pairs, 1958-2013

Figure 3.2: The evolution of global preferential goods trade, 1958-2013. 

Figure 3.3: The evolution of Southern and Northern preferential goods trade, 1958-2013

Table 3.4: Evolution of bilateral vs. multilateral trade agreements, 1973-2013

Chapter 4:

Figure 4.1: The share of Global South and North in world merchandise goods trade, 1948-2013

Figure 4.2a: Diverging Trends within the Global South: Share of Emerging South within Global South–South and South–North Trade, 1948-2013

Figure 4.2b: Diverging Trends within the South: Shares of intra-Rest of the South and intra-Emerging South exports in Rest of the South and Emerging South exports, 1948-2013

Figure 4.3: Share of the Rest of the South, Emerging South and North in world merchandise exports, 1948-2013

Figure 4.4a: The share of primary good exports vs. GDP per capita, 1995-2009 

Figure 4.4b: The share of low-skill manufactures exports vs. GDP per capita, 1995-2009

Figure 4.4c: The share of medium-skill manufactures exports vs. GDP per capita, 1995-2009 

Figure 4.4d: The share of high-skill manufactures exports vs. GDP per capita, 1995-2009 

Figure 4.5: Median export unit values across product and country groups, 2009 (current prices)

Figure 4.6: The share of the Rest of the South, Emerging South and the North in world manufactures exports, 1995-2009

Figure 4.7: The share of the Global South–South trade in world trade, 1995-2009

Figure 4.8: Emerging South vs. Global South in total and manufactured goods trade, 1995-2009

Figure 4.9: Direction of the Rest of the South manufactures exports, 1995-2009

Figure 4.10: Direction of Emerging South manufactures exports, 1995-2009

Figure 4.11: Country distribution of global high-skill manufactures exports, 1995-2009

Figure 4.12: Importance of high-skill manufactures in total manufactures exports of country groups, 1995-2009

Figure 4.13a: Direction of Rest of the South high-skill manufactures exports, 1995-2009

Figure 4.13b: Direction of Emerging South high-skill manufactures exports, 1995-2009

Figure 4.13c: Share of intra-group trade in high-skill manufactures exports, 1995-2009

Figure 4.14: Country distribution of global medium-skill manufactures exports, 1995-2009

Figure 4.15: Importance of medium-skill manufactures in total manufactures exports of country groups, 1995-2009

Figure 4.16: The share of the Rest of the South, Emerging South and the North in world manufactures exports, 1995, 2000, 2009

Figure 4.17: Share of natural resource intensive manufactures and primary goods in total exports from the Rest of the South, 1995-2009

Figure 4.18: Share of high, medium and low skill manufactures in the Rest of the South merchandise exports, by export direction, 1995 vs. 2009

Figure 4.19: Share of natural resource intensive manufactures and primary goods in Rest of the South merchandise exports, by export direction, 1995-2009

Figure 4.20: Share of high, medium and low skill manufactures in Emerging South merchandise exports, by export direction, 1995 vs. 2009

Figure 4.21: Share of natural resource intensive manufactures and primary goods in Emerging South merchandise exports, by export direction, 1995-2009

Figure 4.22: Share of high, medium and low skill manufactures in Northern merchandise exports, by export direction, 1995 vs. 2009

Figure 4.23: Intra-regional global South–South trade in 2009 

Figure 4.24a: Export market diversification by country groups, 1948-2013

Figure 4.24b: Standard deviation of export market diversification within country groups, 1948-2013

Figure 4.25: Average Grubel-Lloyd  (GL) index for the Rest of the South based on skill intensity

Figure 4.26: Average Grubel-Lloyd  (GL) index for the Emerging South based on skill intensity

Figure 4.27: Average Grubel-Lloyd  (GL) index for the North based on skill intensity

Figure 4.28: Total trade restrictiveness (TTRI) faced by Global South and North exporters, 2000-2009

Figure 4.29:  Average effectively applied tariff rates faced by total manufactures exports from Global South and North, 1992-2013

Figure 4.30: Global FDI inflows, 1970-2013

Figure 4.31: Global FDI outflows, 1970-2013

Chapter 5:

Figure 5.1: Copper prices, US dollars, 2000:1-2015:9.

Figure 5.2: All commodities, food and metal commodity price index (2005=100), monthly, 2000:1-2015: 9

Figure 5.3: Oil, coffee, soybeans and cocoa prices, US Dollars, monthly, 2000:1-2015: 

Figure 5.4: Nickel, tin and iron ore prices, US dollars, Monthly, 2000:1-2015: 9

Figure 5.5: Average institutional development in the South vs. the North, 1984-2012

Figure 5.6: Institutional distance across countries, South vs. North, 1984-2012

Chapter 2

Table 2.1: Percentage share of intra-regional South-South PTAs in total PTAs by region

Table 2.2: Percentage distribution of WTO disputes by income, 1995-2015

Table 2.3: Top 10 WTO dispute complainants and respondents, 1995-2015 

Table 2.4: Top WTO dispute complainants by respondent pairs, 1995-2015 

Table 2.5: Total number of BITs by country groups, North vs. South, 1959-2015 

Table 2.6 Total number of BITs and ISDS by country groups and decade, South vs. North, 1959-2015. 

Table 2.7: Top 10 respondents and claimants in total number of ISDS, 1987-2014

Chapter 3: 

Table 3.1: Top five exports and imports of Brazil to and from Kenya in 2009

Table 3.2: Top five exports and imports of Brazil to and from US in 2009

Table 3.3 Trade balance of Brazil with the US and Kenya in 2009 ($1,000)

Table 3.4a: Trade balance of the Rest of the South, Emerging South and the North, 2009 (millions USD)

Table 3.4b: Trade balance of the Rest of the South, Emerging South and the North, 1995 (millions USD)

Chapter 4:

Table 4.1a: Median export unit values, 2009 (thousand USD per metric ton, current prices)

Table 4.1b: Percentage change in median export unit values (per metric ton), 1995 vs. 2009

Table 4.1c: Export prices across products and importers

Table 4.1d: Average Export unit prices across Exporters 

Table 4.2: Geographical distribution of world merchandise exports, 1995-2009

Table 4.3: Geographical distribution of global medium and high skill manufactures exports, 1995-2009

Table 4.4: Export values vs. export volumes in world trade by geographical location

Table 4.5: Extensive margins in world trade in 2005 and 2009: The number of distinct products exported at 6-digit level

Table 4.6: Top 10 Rest of the South exports and their percentage shares in 2009

Table 4.7: Top 10 Emerging South exports and their percentage shares in 2009

Table 4.8: Top 10 products and percentage shares in Rest of the South–South and Rest of the South –Emerging South merchandise exports in 2009

Table 4.9: Top 10 products and percentage shares in Rest of the South–North merchandise exports in 2009

Table 4.10: Top ten products and percentage shares in Rest of the South–South and Rest of the South–Emerging South manufactures exports in 2009

Table 4.11: Top 10 products and percentage shares in Rest of South–North manufactures exports in 2009

Table 4.12: Top Ten products and percentage shares in Emerging South-Rest of the South and Emerging South-Emerging South exports in 2009

Table 4.13: Top 10 products and percentage shares in Emerging  South– North Exports in 2009

Table 4.14: Top 10 products and percentage shares in Emerging South-Rest of the South and Emerging South-Emerging South manufactures exports in 2009

Table 4.15: Top 10 products and percentage shares in Emerging South-North manufactures exports in 2009

Table 4.16a: Grubel-Lloyd  (GL) index for inter and intra-regional trade in 2009 at HS 6-digit product level

Table 4.16a: Grubel-Lloyd  (GL) index for inter and intra-regional trade in 1995 at HS 6-digit product level

Table 4.17: Average Grubel-Lloyd  (GL) index based on skill intensity of exports (at 3-digit level), 1995-2009

Table 4.18: Average intra-group Grubel-Lloyd  (GL) index based on skill intensity (3-digit), 1995-2009

Table 4.19: Top ten exporters of merchandise goods in the world, 1950, 1980, 2013

Table 4.20: Top ten exporters in Global South–South trade, 1950, 1980, 2013

Table 4.21: Top ten Exporters in Global South–North Trade, 1950, 1980, 2013

Table 4.22: Top 10 FDI host countries, 2000 vs. 2013 (billions, current USD)

Table 4.23: Percentage shares of top FDI host countries in the North and the Global South, 2000 vs. 2013

Table 4.24: Top 10 FDI home countries, 2000 vs. 2013 (current billions USD)

Table 4.25: Percentage shares of top FDI home countries in the North and the Global South

Chapter 5:

Table 5.1: Necessary conditions of new-developmentalism

Table 5.2:  Percentage share of Chinese exports and imports in world trade, 1990, 2003 and 2012

Table 5.3. Product composition of Chinese exports and imports, 1990, 2003 and 2012

Table 5.4: Share of Chinese imports in total world trade of selected commodities: copper, nickel, aluminum, iron, and zinc, 1990 vs. 2012

Table 5.5: Importance of copper for Chilean exports, 1990 vs. 2012

Table 5.6: Structure of China-Latin America trade, 1990, 2003 and 2012

Table 5.7: Composition of exports and imports of China to and from six Emerging South countries, 1990, 2003 and 2012

Table 5.8: Importance of China in Rest of the South and Emerging South trade by product groups, 1990 vs. 2012

Table 5.9: Structure of China-Global South trade, 1990 vs. 2012 

Table 5.10: Outward FDI flows and stocks from China by region and country, percentage shares, 2013

Table 5.11: Outward FDI flows and stocks from China by sector, percentage shares, 2013. 

Table 5.12: Land run in the 21st Century: Top ten cross-border land acquisition agreements by investor and target country

Table 5.13: Top ten crops in cross-border land deals

Table 5.14: Top ten investor and target countries in cross-border land deals, by million acres

Table 5.15: US cross-border land deals by target country, top five

Table 5.16: Chinese cross-border land deals by target country, top five

Table 5.17 Share of Southern exports by product groups in world trade in 2012

Table 5.18: Changes in IMF voting shares by region and income group in 2008 and 2010 (number of countries)

Table 5.19: Percentage point change in IMF voting shares by region and income group in 2008 and 2010