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

by Omar Dahi, Firat Demir

Overview

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.

Product Details

ISBN-13:	9781783085873
Publisher:	Anthem Press
Publication date:	10/10/2016
Sold by:	Barnes & Noble
Format:	eBook
Pages:	270
File size:	4 MB

About the Author

Omar S. Dahi is associate professor of economics at Hampshire College. Specializing in economic development and international trade, Dahi has published in various journals including Journal of Development Economics, Applied Economics, Southern Economic Journal, Middle East Report and Forced Migration Review.

Fırat Demir is associate professor of economics at the University of Oklahoma. Specializing in economic development and open economy macroeconomics, Demir has published in various journals including Development and Change, Journal of Development Economics, Journal of Development Studies, Review of Radical Political Economics, Southern Economic Journal and World Development. He was a Fulbright Fellow in Montenegro in 2015-2016.

Read an Excerpt

Southâ"South Trade and Finance in the Twenty-First Century

Rise of the South or a Second Great Divergence

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By Omar S. Dahi, Firat Demir

Wimbledon Publishing Company

Copyright © 2016 Omar S. Dahi and Firat Demir
All rights reserved.
ISBN: 978-1-78308-587-3

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CHAPTER 1

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." 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." 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), and the press briefing for the report called the South "new masters of the global economy." In 2013 the United NationsDevelopment 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, China alone 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 (PorrataDoria, 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 and ideology), theory and empirics. Without a sense of history, an examination of long-term trajectories and how they shaped the current world would not be possible, nor would an appreciation for the rise and fall — and sometimes the recycling — of developmental ideas. A historical perspective also offers us a clearer lens through which to show how power dynamics and shifts in ideology have themselves driven economic outcomes.

Our approach is to examine, from a sympathetic yet critical developmental perspective, the payoff from South–South relations. In doing so, we try to answer the main questions that are crucial to a more complete understanding of South–South exchanges. What have been the areas in which developing countries have forged successful economic partnerships with one another? What are the patterns and characteristics of developing country exports in terms of structure (type of products exported and imported), intensity (amount of trade by volume and dollar value) and direction (to other South or to the North)? Is South–South trade, as many of its advocates claim, relatively concentrated in industrial and more sophisticated products and thus presents higher potential for economic development? Has South–South trade and finance benefited all countries or just a few? What are the possible downsides of South–South trade and finance, and how can developing countries avoid the pitfalls and maximize the benefits?

Advocates of South–South cooperation extol a long list of its benefits: a more level playing field in the global economy and power politics; increased collective bargaining power for countries previously at a considerable disadvantage in almost any trade; enhanced sharing of experience and capabilities in business, technology, communication and other areas; the promotion of national science and technology and of research and development; greater environmental protection; the continued and deepening cultivation of human capital; a greater sense of self-reliance, balanced by cooperation; and more. At the other end of the spectrum there are those who state that some South–South relations are in fact a new form of colonialism, particularly with respect to China's presence in Africa. Many of those discussions are quite polarized, serving primarily as a battleground between diehard supporters of South–South trade and its opponents with partial or incomplete evidence. In this book, we argue the story is more complicated with no knights in shining armor but no evil witches of the East or West, either.

Starting with its past and then examining its present, we show that South–South exchange has tended to be lopsided, dominated by a few countries. Especially since the 1990s, the gaps between developing countries have sometimes become too big to bridge, as some countries have become stuck at — or regressed to — a low level of economic development, with primary commodities and low-skill manufactures dominating their economies, while others have climbed the development ladder. Among the group of countries that we refer to as the Rest of South, for example, 74 percent of their exports in 2012 were of primary commodities — oil, cash crops and so forth — and almost half of these countries depended on one single commodity for more than a third of their export earnings. In contrast, the share of primary goods in total exports of the group we call the Emerging South was less than 20 percent, and while the share of the Rest of South in global technology and skill-intensive exports was only one-third of 1 percent, the Emerging South's share was 55 percent in 2012. In the following pages, we hope to highlight the Rest of South's plight, which usually goes missing during celebrations of the rise of a few.

(Continues...)

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Excerpted from Southâ"South Trade and Finance in the Twenty-First Century by Omar S. Dahi, Firat Demir. Copyright © 2016 Omar S. Dahi and Firat Demir. Excerpted by permission of Wimbledon Publishing Company.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Chapter 1: Introduction to South-South Relations; Chapter 2: South-South Relations in Their Historical Context; Chapter 3: Theoretical frameworks and emerging trends; Chapter 4: Empirical Analysis of the Structure of Trade and Finance; Chapter 5: Stopping a Second Great Divergence: A New Framework For South-South Relations; Chapter 6: Concluding Thoughts.

What People are Saying About This

From the Publisher

“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, and Professor Emeritus of Economics and Faculty Fellow of the Kellogg Institute for International Studies, University of Notre Dame, USA

“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, India

“Omar Dahi and Fırat 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, author of The Poorer Nations: A Possible History of the Global South