Regional trade
Can developing countries be a new engine of growth?
Can south-south trade lead the global economic recovery?
Authors:
K. Hamdani
Publisher:
INSouth, 2009
In spite of the global financial crisis, one third of the world economy, the developing world, continues to grow. In part, this has been possible as a result of South-South trade and investment, which has helped insulate emerging market economies from the worst aspects of the turmoil. But is it realistic to expect developing countries to de-link from their traditional trade and investment partners in the long-run? A report brought out by the Indian Institute of Planning and Management (IIPM) now considers the extent to which developing countries are becoming the world’s new engine of growth.
Much of the recent global expansion in investment and trade has been led by developing countries. Not only has South-South trade been increasing faster than North-South trade for more than a decade, developing country exports to one another are now virtually equivalent to their exports to developed countries. South-South Foreign Direct Investment (FDI) has tripled over the past ten years and is now a particularly important source of capital for smaller and weaker developing countries. For instance, it is underpinning growth rates of close to six percent growth in parts of Sub-Saharan Africa in 2009.
In the current situation it is clearly in the interests of all countries to sustain South-South growth. Not only do developed countries have a commitment to aid the poorest countries of the world, they will also benefit from their growth and development. This means that the extent to which Southern countries continue to grow depends to a large extent on the global policy response to the current crisis, in addition to the domestic measures they put in place themselves. According to the report:
- G7 central bank arrangements to replenish international credit markets need to be extended to developing countries
- IMF and World Bank financing needs to be made available to developing countries as they address the effects of the financial crisis
- developing countries need to rely more on internal demand to sustain growth, while accelerating trade and investment relations amongst themselves
