SOUTH-SOUTH TRADE LIBERALISATION AS A WAY OF REDUCING THE IMPACT OF THE FINANCIAL CRISIS? AN EXPLORATORY CGE SIMULATION

Since 1990, South-South (S-S) trade has been growing much faster than overall world trade. The global financial crisis has, if anything, accentuated this trend, with S-S trade flows proving much more resilient than North-North flows. This has occurred despite the fact that developing countries still apply much higher tariffs to S-S trade than they do on trade with the North. On the basis of a computable general equilibrium model, we simulate reductions of tariff levels on S-S trade and find that the welfare gains are almost double those achievable through a similar reduction in applied tariffs between northern and southern countries. This suggests scope for instilling even more dynamism in S-S trade flows through further reduction of barriers to S-S trade. Copyright (c) 2013 John Wiley & Sons, Ltd.