Essays on North-South Trade

Abstract: The purpose of this study is to examine some factors that influence the volume of North-South trade. The study concerns the period from the early- and mid 1970s to the early 1990s. It consists of an introductory chapter and five main chapters. Chapters 2 and 3 examine trade effects of policies implemented by the North, Chapters 4 and 5 examine trade effects of policies implemented by the South, and Chapter 6 analyses the specialization of trade between the two groups of countries. Chapter 2 analyses the effects of the European Union's (EU's) trade preferences on exports of the developing countries. The main findings are that both the Generalized System of Preferences (GSP) and the Lomé Convention seem to have had a significant positive effect on the exports of the beneficiaries of the schemes. The chapter also examines how the effects are distributed among the EU countries. Belgium and the Netherlands are the two EU countries that are found to have the most increased their imports from the developing countries under both the GSP and the Lomé Convention. Chapter 3 examines if and to what extent aid has affected the EU donors' exports to the developing countries, and how important the tying of aid has been in this process. The study is different from other studies since it quantifies the effects of aid on exports, and explicitly includes estimates of the effects of tied aid on exports. It is found that bilateral EU aid is an important determinant of EU exports to the developing countries, but that the tying of aid has an unclear effect. The greatest effects of aid on exports are found for France. Aid granted centrally from the EU does not seem to affect EU exports, however. Chapter 4 analyses whether and to what extent Export Processing Zones (EPZs) affect the developing host country's total exports to the EU countries, and if a so-called catalyst effect exists. A catalyst effect exists if the export effects of the EPZs are greater than the volume of exports emanating from the zones. The EPZs are found to have a significant positive impact on total exports. A positive catalyst effect is also found, but the catalyst effect does not seem to be dynamic as it remains more or less constant over time. Chapter 5 examines how different exchange rate regimes have affected the developing countries' exports to the EU, Japan and the United States. The results indicate that, during the 1980s, the less flexible the exchange rate regime the lower the developing countries' exports. The main conclusion to be drawn is thus that the pegging of developing countries' currencies has adversely influenced the developing countries' exports through a misalignment of their real exchange rate. Chapter 6 analyses the intra-industry trade specialization between the EU and the developing countries. It shows that EU intra-industry trade with the developing countries has greatly increased and that the traditional measure of intra-industry trade, the Grubel-Lloyd index, is inappropriate when applied to North-South trade. By and large, the empirical analysis confirms the predictions of the mainstream theory on intra-industry trade. That is, intra-industry trade increases with average per capita income and with reduced differences in capital-labor ratios between the developed and the developing countries.