2.3.1 A theoretical explanation of South-South trade
Greenaway and Milner (1990) focus on the sources of South-South trade in order to attempt to deliver a consistent framework. First, South-South trade can be
8“We have defined old products as all products that were exported at least three years before 1995, consecutively or not. Likewise, new products have been defined as those products that have been exported for at least five times after 1995”.
sustained through dissimilarity and inter-industry specialisation founded not only on comparative advantages with technological and relative production differences among countries but also on the factorial endowments. Jenkins and Edwards (2006), Kaplinsky and Messner (2008), He (2013) show that “Asian drivers” (China, India) have the capacity to influence the SSA trade patterns through the trade channel from a complementary effect, the growth of exports markets and terms of trade. Second, Linder assumptions (McPherson et al., 2001) and the new trade theory justify the existence of trade between countries having the same level of development and sim-ilar specialisations which lead to scale economies, increasing returns and products differentiation. In other words, this kind of trade is based on similarity between trading partners and intra-industry specialisation. Third, for Otsubo (1998), the increasing of South-South trade improves the benefits of learning “by operating in a less competitive market environment and generating economies of scale that are necessary to break into the North’s markets for more technologically advanced prod-ucts”. Market access abroad is a strong factor which helps to geographically diversify the trade. Fugazza and Robert-Nicoud (2006), Fugazza and Vanzetti (2008) suppose that South-South trade allows exporters in those countries to serve more outside markets due to chepaer price of intermediate inputs and the implementation of trade liberalisation. For instance, lower trade hindrances in South-South trade bring the fall of prices for intermediate inputs and exporters of final goods are able to cover the cost of exporting on foreign markets.
2.3.2 South-South trade and trade diversification
Trade growth can be explained through several dimensions9, for example, intensive margin, product extensive margin and geographical extensive margin. The economic literature has mostly studied the first two marges, although studies have gradually appeared about the third. Indeed, the determinants of trade growth have drawn more and more attention from researchers focusing on the diversification issue, either by products and/or by trading partners.
Shepherd (2010) contributed to fill the literature void with an empirical work on the geographical extensive margin. More precisely, he assesses the impact of deter-minants of trade growth explained by the geographical trade diversification. He finds significant evidence that a decrease in trade costs increases the number of export des-tinations for developing countries whereas the effect is reverse for the market size and the level of development of domestic market. For instance, a decrease of 10% in trade costs leads to an increase of 5-6% in the number of export destinations for developing countries. Since the Uruguay round during the GATT, tariffs in developing countries have diminished to one-third over the last two decades, that is 14.67% in 1996 and 8.46% in 2006 on average10for South-South trade. For Albornoz etal. (2012), trade agreements and exchange with neighbouring countries are necessary conditions which allow the improvement in trade diversification at the extensive margin to test “new”
products to these destinations before to provide the outside markets in the case of uncertain trade gains. Regolo (2013) showed that trade between partners having similar endowments and a same level of development drastically improves more
bi-9According to Amurgo-Pacheco and Pierola (2008), trade growth comes from the increase in trade with former trading partners without new products (intensive margin), with old/new part-ners and new products (product extensive margin) and with new partpart-ners and old/new products (geographical extensive margin).
10http://www.cepii.fr/PDF_PUB/wp/2013/wp2013-36.pdf
lateral trade than between dissimilar economies. These findings sustain the idea that trade between developing countries is higher than trade between developing and de-veloped countries. Moreover, the author emphasised the positive effect of decreasing trade costs in order to promote export diversification across products. Amighini and Sanfilippo (2014) studied the effects of the upsurge of the SS integration through trade and foreign direct investment (FDI). They estimated export performance of African countries with the index of export diversification of Herfindahl and by the unit value of exports. Their economic intuition stipulates that African countries that import from developing countries increases their capacity to extend the variety of manufactured exports by incorporating more developed products for weakly diver-sified economies. An upgrading effect appears for African exports, which is higher when goods are imported from developing countries than from developed economies.
Several reasons can explain these findings. First, the complementary effect between developing countries which improves productivity gains due to the incorporation of imported inputs and encourages the rise of inputs available for exporters. Second, the technology transfer is better accessible for these economies because of the rel-ative similarity of technology and the level of development which allows enhancing the learning potential.