Cross-border Trade and Investment among Emerging Economies

Abstract

Over the last quarter century or so, the volume of world trade grew at an average rate of 6 per cent. This increase in trade has not been homogenous among regions. Asia has been engaged in a major and admirable transformation. Latin America has pursued integration efforts for long, but with poorer results, and together with Africa it continues to rely on its resource base for growth in trade. The structure of trade in emerging market economies is analysed by examining the geographic and commodity structure of trade as well as trade integration efforts. Increases in trade can be attributed to several reasons: increased formal integration, better use of comparative advantage in relation to the advanced economies, and more complementarily among developing countries. The integration of trade in Asia is attributed largely to market forces but less so in other areas, particularly Latin America. The article also reviews the rise in Foreign Direct Investment (FDI), particularly the role of emerging countries as destinations and origins of capital flows. The flows to Asia and Latin America are equivalent to almost one-fourth of the total FDI. Within the total flows, there is a growing role of investments originating in and directed to emerging economies (EEs), particularly within Asia. FDI flows from emerging markets (EMs) are strong in mining, but the areas of investment are being diversified at a rapid pace.