Is South-South Trade a Testing Ground for Structural Transformation?

The purpose of this paper is to analyse the composition of South–South as opposed to South– North trade in recent years, applying emerging methodologies and highly disaggregated trade data to consider whether the South as a market provides developing countries with greater opportunities to transform their productive structures and move to more sophisticated export sectors than the Northern market does. The results show that for a group of developing countries, primarily in Africa, Latin America and Central Asia, exports within the South are more sophisticated and better connected in the product space than exports to the North, whereas the opposite is true for the faster-growing economies of Asia and Eastern Europe (excluding the Commonwealth of Independent States). It is shown that the primary source of cross-country variation in export sophistication and connectedness is between Northbound rather than Southbound export baskets. And yet it is clear that for a large group of developing countries, current export flows to the North are not particularly growth-enhancing, nor do they offer learning opportunities to fuel structural transformation, and for these countries South–South trade flows may indeed be a testing ground for structural transformation. This paper focuses on clearly establishing the facts about export composition by market, and identifying promising avenues for further investigation.