South-South Ideas Paper: Least Developed Country Graduation – Can South‐South Cooperation Have a Positive Impact on Trade and Finance?

This report undertakes an in-depth examination of the potential role of South-South Cooperation (SSC) in supporting sustainable LDC graduation. Two avenues of SSC are considered: trade-related cooperation and extended support through concessional financial flows. It stresses that both avenues are mutually reinforcing. Analysis reveals that LDCs are increasingly integrated with the Global South through trade in goods and services, investment, Southern Regional Trading Arrangements (RTA) and financial flows from both public and private Southern providers. Southern financial institutions such as the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) have added new dimensions to these financial flows. This study argues that opportunities to leverage these connections have emerged that could help LDCs in their quest for sustainable graduation.

This study, therefore, puts forward a number of concrete initiatives. It provides evidence that Southern markets are key export destinations for many graduating LDCs. Under LDC schemes Southern country preferential market access plays an important role in enhancing competitive strengths. Many graduating LDCs are also members of Southern RTAs. This study suggests Southern providers continue to provide preferential market access to graduating LDCs for a specific period beyond graduation, preferably for five years. It recommends that regional RTA provisions (similar to those provided to LDCs) be calibrated to extend favourable treatment to graduated LDCs on a predictable basis. And that the special and differential treatment provided to LDCs under various WTO agreements and provisions are also extended to graduating LDCs for an additional period. Southern countries need to demonstrate solidarity with graduating LDCs. This paper argues that trade-related aid and concessional credit will help these countries build the supply-side capacities they need, raise export competitiveness, and build production networks and value chains at a time when preferential margins will decline.