geographic concentration of global exports in detailed product areas. Section 6 begins with a brief discussion of prospects for expanding South-South trade as a substitute for declines in North-South trade that may be long-term both because of the changing structure of world demand and the consolidation of some global value chains.

We end with some policy conclusions, which are necessarily tentative since the recovery is unfolding as we conduct our research. These conclusions focus on the need for a continued support of trade credit by the international financial corporations, the need for developing countries to find other, non-export, sources of demand, or to diversify trade patterns to focus more on trade among developing countries, and the need for developed countries to resist trade protection measures even in a time of high and persistent rates of unemployment.

# **2. GVCs and the Export Reliance of Developing Countries**

The expansion of global value chains began in the 1980s as developing countries shifted from import substitution strategies to export-oriented development strategies. Developing countries’ dramatic export success is evident in _Figure 2_ (left-hand panel), which shows that since the early 1980s the export share of low and middle-income countries in world exports of goods and services rose almost steadily over the past 20 years. The goods export share rose from 16% in 1986 to over 30% in 2008, while the services export share grew from 13% to 20% in 2007. This shift in world trade patterns also means that developing countries are much more reliant on export revenues for final demand. On average, low- and medium-income countries became steadily more export oriented, with exports as a share of GDP growing to 33% in 2007 compared to just 15% in 1980. China’s enormous success is well known, and its export reliance went from around 3% of GDP in 1970 to almost 43% in 2007. But the increased export orientation was also dramatic in Mexico, South Korea, Argentina and India, among others ( _Figure 2,_ right-hand panel). See _Appendix 1_ for the export shares by region of origin.

**<u>Figure 2: Exports from Low and Middle Income Countries</u>**

<!-- Start of picture text --> Total Developing Country Exports (% of Exports (% of National GDP), Selected Countries<br>World Exports)<br>34%<br>32%<br>30%<br>28%<br>26%<br>24%<br>22%<br>20%<br>18%<br>16%<br>14%<br>12%<br>10%<br>LMIC ARG BRA CHN IND KOR MEX RUS ZAF<br>Goods exports Services exports 1970 1990 2007<br>Source: Own illustration. Data: World Development Indicators, World Bank.<br>NB: Low & middle income countries cover most developing countries.<br>42.5 41.9<br>33.2 30.5 31.6<br>28.0 28.3<br>24.6 24.2<br>19.8 19.0 21.2 18.6 21.8<br>13.7 13.6<br>9.6 10.4<br>5.6 7.1 7.7<br>2.6 3.8<br>1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008<br><!-- End of picture text --> The increased export orientation of developing economies also involved a change in the structure of international trade due to the expansion of global production networks, also called global value chains. With the expansion of global value chains in the 1980s, trade in inputs grew dramatically as a share of total input use. Figure 3 shows that by 2004, low- and middle-income 4