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

By Omar Dahi and Firat Demir

The last two-three decades have seen a dramatic rise in South–South economic relations, yet no book exists that systematically examines these changes in the global economy. Most studies on South–South relations focus on regionalism, that is regional integration in South America, preferential trading agreements, or China–Africa relations. While studies/books on South–South trade existed in the 1970s and 1980s, the new round of South–South linkages has not been covered. In addition to filling this gap, this book also includes a historical, theoretical, and empirical examination that attempts to both place current South–South relations within their historical trajectory and examine in what ways current South–South relations differ from previous attempts (‘new-regionalism’), especially that most of the previous discussions took place under the Import Substitution Industrialization or relatively protectionist era. The book contains rigorous empirical analysis of trade and finance to uncover the developmental implications of South–South trade and finance. Finally, the book engages with the burgeoning “new-developmentalism” to discuss how South–South economic integration and the rise of the South as an economic power and as an actor in multinational institutions both benefits and harms the developmental opportunities for poor and middle income South countries.

• Language: English
• Publisher: Anthem Press
• Release date: Oct 10, 2016
• ISBN: 9781783085873

Book preview

South–South Trade and Finance in the Twenty-First Century

ANTHEM FRONTIERS OF GLOBAL POLITICAL ECONOMY

The Anthem Frontiers of Global Political Economy series seeks to trigger and attract new thinking in global political economy, with particular reference to the prospects of emerging markets and developing countries. Written by renowned scholars from different parts of the world, books in this series provide historical, analytical and empirical perspectives on national economic strategies and processes, the implications of global and regional economic integration, the changing nature of the development project and the diverse global-to-local forces that drive change. Scholars featured in the series extend earlier economic insights to provide fresh interpretations that allow new understandings of contemporary economic processes.

Series Editors

Kevin Gallagher – Boston University, USA

Jayati Ghosh – Jawaharlal Nehru University, India

Editorial Board

Stephanie Blankenburg – School of Oriental and African Studies (SOAS), UK

Ha-Joon Chang – University of Cambridge, UK

Wan-Wen Chu – Research Center for Humanities and Social Science, Academia Sinica, Taiwan

Alica Puyana Mutis – Facultad Latinoamericana de Ciencias Sociales (FLASCOMéxico), Mexico

Léonce Ndikumana – University of Massachusetts–Amherst, USA

Matías Vernengo – Bucknell University, USA

Robert Wade – London School of Economics and Political Science (LSE), UK

Yu Yongding – Chinese Academy of Social Sciences (CASS), China

South–South Trade and Finance in the Twenty-First Century

Rise of the South or a Second Great Divergence

Omar S. Dahi and Fırat Demir

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Copyright © Omar S. Dahi and Fırat Demir 2016

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ISBN-13: 978-1-78308-585-9 (Hbk)

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To my mother

O. D.

To the three joys of life, Dace, Damla and Alnis

F. D.

CONTENTS

List of Figures

List of Tables

Preface

Acknowledgments

Appendix

References

Index

FIGURES

3.1Number of preferential trade agreements by country pairs, 1958–2013

3.2The evolution of global preferential goods trade, 1958–2013

3.3The evolution of Southern and Northern preferential goods trade, 1958–2013

3.4Evolution of bilateral versus multilateral trade agreements, 1973–2013

4.1The share of South and North in world merchandise goods trade, 1948–2013

4.2aDiverging trends within the South: share of Emerging South within South–South and South–North trade, 1948–2013

4.2bDiverging trends within the South: shares of intra-Rest of South and intra-Emerging South exports in Rest of South and Emerging South exports, 1948–2013

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

4.4aThe share of primary product exports vs. GDP per capita, 1995–2009

4.4bThe share of low-skill manufactures exports vs. GDP per capita, 1995–2009

4.4cThe share of medium-skill manufactures exports vs. GDP per capita, 1995–2009

4.4dThe share of high-skill manufactures exports vs. GDP per capita, 1995–2009

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

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

4.7The share of the South–South trade in world trade, 1995–2009

4.8Emerging South vs. global South in total and manufactured goods trade, 1995–2009

4.9Direction of the Rest of South manufactures exports, 1995–2009

4.10Direction of Emerging South manufactures exports, 1995–2009

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

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

4.13aDirection of Rest of South high-skill manufactures exports, 1995–2009

4.13bDirection of Emerging South high-skill manufactures exports, 1995–2009

4.13cShare of intra-group trade in high-skill manufactures exports, 1995–2009

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

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

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

4.17Share of natural resource–intensive manufactures and primary goods in Rest of South merchandise exports, 1995–2009

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

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

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

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

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

4.23Intra-regional South–South trade in 2009

4.24aExport market diversification by country groups, 1948–2013

4.24bStandard deviation of export market diversification within country groups, 1948–2013

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

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

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

4.28Total trade restrictiveness index (TTRI) faced by global South and North exporters, 2000–2009

4.29Average effectively applied tariff rates faced by total manufactures exports from global South and North, 1992–2013

4.30Global FDI inflows, 1970–2013

4.31Global FDI outflows, 1970–2013

5.1Copper prices, USD, 2000:1–2015:9.

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

5.3Oil, coffee, soybeans and cocoa prices, USD, monthly, 2000:1–2015:9

5.4Nickel, tin and iron ore prices, USD, monthly, 2000:1–2015:9

5.5Average institutional development in the South vs. the North, 1984–2012

5.6Institutional distance across countries, South vs. North, 1984–2012

TABLES

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

2.2Percentage distribution of WTO disputes by income, 1995–2015

2.3Top WTO dispute complainants by respondent pairs, 1995–2015

2.4Top 10 WTO dispute complainants and respondents, 1995–2015

2.5Total number of BITs by country groups, North vs. South, 1959–2015

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

2.7Top 10 respondents and claimants in total number of ISDS, 1987–2014

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

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

3.3Trade balance of Brazil with the US and Kenya in 2009 (thousands of USD)

3.4aTrade balance of the Rest of South, Emerging South and the North, 2009 (millions USD)

3.4bTrade balance of the Rest of South, Emerging South and the North, 1995 (millions USD)

4.1aMedian export unit values, 2009 (thousand USD per metric ton, current prices)

4.1bPercentage change in median export unit values (per metric ton), 1995 vs. 2009

4.1cExport prices across products and importers

4.1dAverage export unit prices across exporters

4.2Geographical distribution of world merchandise exports, 1995–2009

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

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

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

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

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

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

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

4.10Top 10 products and percentage shares in Rest of South–South and Rest of South–Emerging South manufactures exports in 2009

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

4.12Top 10 products and percentage shares in Emerging South–Rest of South and Emerging South–Emerging South exports in 2009

4.13Top 10 products and percentage shares in Emerging South–North exports in 2009

4.14Top 10 products and percentage shares in Emerging South–Rest of South and Emerging South–Emerging South manufactures exports in 2009

4.15Top 10 products and percentage shares in Emerging South–North manufactures exports in 2009

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

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

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

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

4.19Top 10 exporters of merchandise goods in the world, 1950, 1980 and 2013

4.20Top 10 exporters in South–South trade, 1950, 1980 and 2013

4.21Top 10 exporters in South–North trade, 1950, 1980 and 2013

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

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

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

4.25Percentage shares of top FDI home countries in the North and the global South

5.1Necessary conditions of new-developmentalism

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

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

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

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

5.6Structure of China–Latin America trade, 1990, 2003 and 2012

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

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

5.9Structure of global South–China trade, 1990 vs. 2012

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

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

5.12Land run in the twenty-first century: top ten cross-border land acquisition agreements by investor and target country

5.13Top ten crops in cross-border land deals

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

5.15Top five US cross-border land deals by target country

5.16Top five Chinese cross-border land deals by target country

5.17Framework for assessing South–South relations

5.18Share of Southern exports by product groups in world trade in 2012

5.19Changes in IMF voting shares by region and income group in 2008 and 2010 (number of countries)

5.20Percentage point change in IMF voting shares by region and income group in 2008 and 2010

PREFACE

Tolstoy wrote in Anna Karenina: All happy families are alike; each unhappy family is unhappy in its own way.¹ This is a book about the unhappy families. The countries of the global South, also called developing, un(der)developed, semi-developed, periphery, the Rest, Third World and so forth, are more than ever at the center of attention in the world economy and are shaping the new world order for the twenty-first 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 them. 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 twenty-first century. In doing so, we have two goals. First, we want to provide an overview of the historical and theoretical context of South–South cooperation. Second, we want to look beyond the knight in shining armor versus dark lord of the east, Sauron narratives of the rise of the South that we find too often in academic and popular writing. By reexamining 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 BRICS (Brazil, Russia, India, China and 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 and, in some cases, simply for survival.

The book emerged from 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 became stuck after decades of Washington Consensus experimentation) seems not to be releasing its grip on those countries in the new multipolar world. On the contrary, the rise of a few Emerging South countries appears to have a regressive effect on decades of industrialization efforts by 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 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 the ongoing debate 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 homogeneous 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 accounted for 65 percent of the world’s population in 2015—4.7 billion people—while 157 mostly smaller and poorer countries in the Rest of South accounted for 1.6 billion people, or 22.6 percent 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.

1. L. Tolstoy, 2014, Anna Karenina , Oxford: Oxford University Press (Rosamund Bartlett translation).

ACKNOWLEDGMENTS

Many people helped with this book. Anthem Press has been a pleasure to work with and has made the process much easier than it might have been. We thank James Boyce, Mustafa Caglayan, Kevin Gallagher, Ilene Grabel, Jeffrey B. Nugent, Ziya Onis, Arslan Razmi, David Ruccio, Peter Skott, Roberto Veneziani and Mwangi Wa Gĩthĩnji for their feedback on earlier versions of several chapters at different stages of this project. We also thank session participants at the Union for Radical Political Economics/Allied Social Sciences Association (URPE/ASSA) meetings in 2012, 2014 and 2015; the Eastern Economics Association (EEA) meetings in 2012 and 2015; the Analytical Political Economy Workshop at the University of Notre Dame in 2015; and the Southern Economic Association (SEA) meetings in 2012; and thanks to seminar participants at the University of Oklahoma in 2011, Queen’s University-Belfast in 2012 and the Central Bank of the Republic of Turkey, Koc University and the University of Massachusetts–Amherst and the World Bank in 2013. We are grateful to two anonymous referees who gave significant feedback on an earlier draft of this book. Several people gave us input on various aspects of the manuscript, including Vivek Bhandari, Bassam Haddad, Salman Hameed, Vijay Prashad, Sayres Rudy, Alejandro Velasco and Lisa Wedeen. We are also greatly thankful to John Stifler for his tireless dedication and excellent help with editing and revisions that made the final product vastly better than it was. We also thank Alexander Gorzewski, Xiaoman Duan, Chenghao Hu, Lord Andzie Quainoo, Wenliang Ren, Souleymane Soumahoro and Ying Zhang for their research assistance. We are also grateful for generous financial support by the South–South Tricontinental Collaborative Programme, International Development Economics Associates (IDEAs), 2013.

We especially need to thank our dissertation chairs, mentors and friends, Amitava K. Dutt and Jaime Ros, for teaching us to think critically about economic issues. They inspired several of our arguments in this book since our graduate school days and always urged us to reject the comfort of dogma for evidence and logic. It was also because of them that we started—for better or worse—coauthoring.

Omar Dahi: I would like to thank the Dean of Faculty Office and School of Critical Social Inquiry at Hampshire College for generous financial support at various stages of writing this book. A fellowship I received from the Whiting Foundation allowed me to conduct research in Buenos Aires, which proved to be very useful for understanding the dynamics of regional integration in the Southern Cone.

I cannot think of a better place to work, teach and conduct research than the School of Critical Social Inquiry at Hampshire College, Amherst, Massachusetts, where my colleagues encourage and inspire me on a daily basis. I have also been fortunate to have incredible students in the South–South Economic Relations course that I offer every spring semester at Hampshire College. Many of their critiques, input, ideas and research have also helped shape my own thinking on South–South relations. Carol Boudreau, Emily Gallivan and Chyrell George: thank you for your help and patience. Over the last decade I have been incredibly lucky to enjoy the friendship and support, personally and intellectually, of Aaron Berman, Vivek Bhandari, Margaret Cerullo, John Drabinski, Eray Duzenli, Viveca Greene, Salman Hameed, Sami Hermez, Yasser Munif, Helena Nassif, Sayres Rudy, Falguni Sheth, Marty and Linda Wolfson, Alejandro Velasco, Jihad Yazigi and Barbara Yngvesson. To Stan Warner and Laurie Nisonoff, I owe a special debt of gratitude for their mentorship and support. I have learned a lot from your kindness and wisdom. Frank Holmquist and Mary Hoyer’s boundless generosity and kindness have given me and my family a home away from home. I cannot thank them enough.

I could not have reached this point without the love and encouragement of my parents, Sami and Isaaf, and my brothers, Firas and Ayham. I hope I can return the favor.

Isaf and Ismael taught me once again what unconditional love means. Thank you for bringing such joy into my life every day. Without Cora, I could have not finished graduate school, let alone written a book. You are the love of my life and my best friend. I promise to take a break before my next project.

Firat Demir:

I am thankful to my present employer, the Department of Economics at the University of Oklahoma, which provided me with time, resources and generous financial and intellectual support to bring this book to a completion. I am most thankful to my colleagues and undergraduate and graduate students for their inquisitive and right-to-the-point questions, which helped crystallize several of the ideas presented in this book. I owe special thanks to Sohrab Behdad, Gregory Burge, Nilgün Erdem, Suzette Grillot, Alexander Holmes, Gary Hoover, Kwan Kim, Tami Kinsey, Misha Nedeljkovich, Ziya Öniş, Cynthia Rogers, Fikret Şenses, Oktay Türel, Joshua Landis, Samer Shehata and Mitchell Smith for their encouragement and friendship. I also benefited greatly from two sabbatical leave visits to the Faculty of Business and Administrative Sciences at Koc University (Istanbul) and the Department of Economics at the University of Massachusetts–Amherst in spring 2013. Both universities and colleagues in each helped significantly at the earlier stages of this project.

This book was also made possible by a Fulbright scholar grant from the J. William Fulbright Foreign Scholarship Board, which allowed me to spend a very productive year in the Faculty of Economics at the University of Montenegro, where I taught and conducted research during the 2015–16 academic year. I owe special thanks to my colleagues at the University of Montenegro, particularly to Saša Popović, and also to Anica Vujnović and Milena Vučelić at the American Corner in Podgorica, and to Misha Nedeljkovich, Aleksandar Nikolić, Marko Pavlović and Rajko Rakicević, whose friendship, generous help and support made my visit to Montenegro a rewarding and unforgettable experience.

I also want to thank my son, Alnis, and daughter, Damla, for their patience during the writing of this book. Their curious questions and constant interruptions prevented me from becoming a grumpy academic par excellence. My son’s goal of writing a book of his own one day also inspired me to write this book. Finally, I would like to thank my wife, Dace, for all her love and support during the whole process of getting ready and then writing this book.

As usual, all remaining errors and omissions are ours.

Chapter One

INTRODUCTION TO SOUTH–SOUTH RELATIONS

In 2012, a series of posters advertising the London-based HSBC bank caught the eye of international travelers in airports worldwide. Hung on walls alongside moving walkways, the posters featured ironic or humorous photographs, each with a sentence above it starting with the words In the future. Created by the preeminent international advertising agency J. Walter Thompson and designed to portray HSBC as forward-thinking, the marketing campaign highlighted different ways in which HSBC was at the cutting edge of banking and commerce worldwide.

One poster in particular is relevant to this book. The poster showed a photograph of a gray Chinese terracotta warrior with a steely gaze. Everything about the image was similar to the classic photographs of the terracotta warrior statues except for one detail: instead of boots the warrior wore bright yellow and green flip-flops. Over the photo was the line, In the future, South–South trade will be norm, not novelty. Additional text elaborated on this line: Direct trade between fast growing nations is reshaping the world economy. HSBC is one of the leading banks for trade settlement between China and Latin America. There’s a new world emerging. Be part of it.¹ The HSBC poster provides an ideal entry point for a critical examination of South–South trade: the ideas conjured by the terracotta warrior photograph and the poster in general are a perfect metaphor for the pervasiveness—and the complexity—of the economic activity that characterizes this whole vast subject.

The virtues of trade between and among countries that belong to what has long been called the global South or simply the South are now trumpeted not only by giant corporations and major branding agencies but also by public national and international institutions. In 2003, the UN General Assembly decided to observe September 12 every year as the United Nations Day for South–South Cooperation, in recognition of how trade and financial exchanges between two or more countries within the global South is an important element of international cooperation for development, offering viable opportunities for developing countries and countries with economies in transition.² The assembly chose that particular day in commemoration of the adoption, in Buenos Aires on September 12, 1978, of the Buenos Aires Plan of Action for Promoting and Implementing Technical Cooperation among Developing Countries.

Meanwhile, the World Trade Organization (WTO) dedicated a major section of its 2003 World Trade Report to examining the growth of such trade (WTO, 2003). Amplifying the WTO’s message, the United Nations Industrial Development Organization (UNIDO) in 2006 published its highly significant study, Industrial Development, Trade and Poverty Reduction through South–South Cooperation. Not to be outdone, the World Bank (WB) came up with its Global Development Horizons 2011 report dedicated to multipolarity, exploring the effects of the rise of the Emerging South on the rest of the world (World Bank, 2011). Later, it focused its 2015 flagship report for Latin America on the region’s performance, with an emphasis on South–South trade, titled Latin America and the Rising South: Changing World, Changing Priorities (Torre et al., 2015),³ and the press briefing for the report called the South new masters of the global economy.⁴ In 2013 the United Nations Development Project (UNDP) named its 2013 Human Development Report The Rise of the South (UNDP, 2013), and there is now a separate office for South–South cooperation within the UN itself.

The press was paying attention. The WSJ (Wessel, 2008) hailed the growth of South–South trade as perhaps the opening of a new epoch of globalization, and The Economist Intelligence Unit (2015) dedicated a full issue of its Growth Crossings series, titled Chain Reactions, to examining how trade between emerging markets is reshaping global supply chains. Eventually, the subject of South–South trade and, increasingly, South–South finance reentered mainstream scholarly discussions, doing so after many years in which economics departments in European and North American universities had scorned these subjects as relics of the bygone era of economic nationalism that followed World War II. The number of academic journal articles reflecting this phenomenon has mushroomed, and this proliferation of interest does not even count the (now slightly curbed) general enthusiasm for analyzing the rapidly expanding economies of the BRICS—the popular acronym for Brazil, Russia, India, China and South Africa.

Trade and finance between fast-growing nations are indeed reshaping the world economy—but in what way, and to whose benefit? In the second decade of this millennium, some states are trading profitably and widely while others—typically the least developed—are left out. And so the questions multiply. One obvious and, we think, crucial question is: Can the poorest countries of the global South truly be part of the new emerging world economic order and, if so, how? Less obviously, but with broader implications, do South–South economic exchanges today still hold the promise of an alternative path for development, or has South–South trade become just another marketing slogan? Building on a decade and a half of research and publication on South–South economic relations, this book is our attempt to answer these questions. Although by now plenty of studies have examined different aspects of this subject, we are attempting what we believe is the first study of South–South economic exchanges—both in trade and finance—in a comprehensive framework.

Before describing what this book has to offer, we should ask whether or not this fascination with South–South economic exchanges is really warranted. We believe it is. From the post–World War II decades until the late 1980s, South–South trade represented roughly 5–10 percent of all global trade. However, from 1990 to 2000 this proportion increased from 10 percent to 16 percent. By 2005 it was at 20 percent, and by 2013, 31 percent of all global trade was between or among countries of the South.

Many other statistics illustrate the same economic evolution. Here are a few:

•In 1950, when international trade within the South was in its infancy, exports from the South to the rest of the world already accounted for approximately 30 percent of all world trade, and by 2013 that share had risen to 54 percent.

•Over the same period, the direction of those exports shifted markedly. By 2013, more than 58 percent of all Southern exports were being shipped to other Southern countries.

•The structure of this trade has also changed significantly, as manufactured goods have begun to account for a significant portion of global South exports, both to other countries of the South and to the rest of the world. In 1970, the South accounted for 7 percent of global manufactures exports and only 2 percent of the worldwide export of high-skill and technology-intensive manufactures. In 2012 its share in global manufactures exports surged to 47 percent and, even more importantly, its share in global high-skill manufactures exports climbed to 56 percent. Moreover, by 2012, manufactures accounted for three-quarters of all South–South merchandise exports and more than half of all South manufactures exports to the rest of the world. While the share of high-skill manufactures was a bare 2 percent of South–South exports in 1970, it climbed to 25 percent in 2012.

We see a similar pattern in global financial flows, as banks and industries—with frequent encouragement from their own governments and from those of their intended hosts—have increasingly sought new opportunities in previously neglected places. The share of the South in world foreign direct investment (FDI) inflows, for example, increased from less than 30 percent in 1970 to over 60 percent in 2013. During this period the South has also become a major investor in other countries, increasing its share in global FDI outflows from 0.3 percent in 1970—that is, one-third of 1 percent—to just below 40 percent in 2013, and more than 60 percent of these flows went to other Southern countries. In 2010 Southern countries from Asia accounted for 68 percent of all mergers and acquisitions in Latin America and the Caribbean region—three times their total accumulated acquisitions in this region over the previous two decades. As of 2013, six global South countries were among the top twenty investors in the world, Chinaalone ranking number two in global FDI inflows and number three in outflows.

Another indication of the growing interconnections between different countries is the significant increase in the number of preferential trade agreements (PTAs) and their importance in world trade since the 1990s. From the 1950s through 2014, at least 266 PTAs were reported to the WTO, 88 percent of them signed after 1988. Altogether, by 2014 these agreements accounted for 53 percent of all world trade—and 75 percent of them have been between countries of the South. A parallel development has taken root with investment flows. By 2015, 3,331 bilateral investment treaties (BITs) had been signed and were in force worldwide, 1,292 of them between Southern countries and more than half of those signed after 2000. In these tectonic shifts in global trade and finance we are witnessing a reordering of the global economy as well as of its management, whether it be the management of world finance through the International Monetary Fund (IMF) or development planning through the World Bank or the new BRICS Bank.

Aspects of these changes have been the subject of several valuable books. First are the books examining the rise of BRICS: BRICS and Development Alternatives (Cassiolato and Vitorino, 2009), Building a Future with BRICS (Kobayashi-Hillary, 2007), The Rise of the BRICS in Africa (Carmody, 2013), BRICS: An Anti-Capitalist Critique (Bond and Garcia, 2015) and The BRICS and the Future of Global Order (Stuenkel, 2015). These books often have a geopolitical bent, and their economic analyses, when present, are of the countries’ interactions with one another or with non-BRICS countries. Much of the analysis in these books is useful in understanding how those rising powers are leveraging alliances of all sorts to increase their political and economic clout on a global level. Another category of books homes in on China’s economic relations with other countries in the South, such as those many developing countries in Latin America and Africa: Economic Opportunities and Challenges posed by China for Mexico and Central America (Peters, 2005), China and Latin America: Economic Relations in the Twenty-First Century (Jenkins and Peters, 2009), New Presence of China in Africa (Van Dijk, 2010), The Morality of China in Africa: The Middle Kingdom and the Dark Continent (Chan, 2013) and Globalization, Poverty and Inequality: Between a Rock and a Hard Place (Kaplinsky, 2013). In The Dragon in the Room: China and the Future of Latin American Industrialization (2010), Gallagher and Porzecanski’s vital examination of China’s potentially deindustrializing impact on Latin America underscores some of the arguments we develop in this book. Alice Amsden’s body of work in Rise of the Rest (2001), Escape from Empire (2007) and elsewhere, serves as an important intellectual influence on our study of South–South relations. Finally, numerous books and edited volumes examine either case studies of South–South exchange or regional integration agreements around the globe. These include Arab Economic Integration (Galal and Hoekman, 2003), Trade Policy and Economic Integration in the Middle East and North Africa (Hakimian and Nugent, 2005), MERCOSUR: The Common Market of the Southern Cone (Porrata-Doria, 2005), The African Union and New Strategies for Development in Africa (Adejumobi and Olukoshi, 2008), The Economics of East Asian Integration: A Comprehensive Introduction to Regional Issues (Fujita et al., 2011), The Future of South–South Economic Relations (Najam and Thrasher, 2012), Regional Economic Integration in West Africa (Seck, 2013), Decline of U.S. Hegemony? A Challenge of ALBA and a New Latin American Integration of the Twenty-First Century (Bagley and Defort, 2015) and The Politics of Arab Integration (Luciani and Salame, 2015).

While these scholars’ contributions are important valuable to our understanding of various aspects of South–South economic relations, this book undertakes an analysis of the history, theoretical foundations, development trajectories and empirical analysis of South–South exchanges in trade and finance—all in one comprehensive study. What makes our approach comprehensive is our integration of three elements of analysis that we believe are necessary to fully understand economic phenomena: history (with a focus on power