Two main determinants of the recent dynamism of SSTmust be stressed. First, the vertical specialization of countries (Hummels, Ishii, and Yi 2001). . .

South-South trade (SST) refers to trade between developing countries,which represent a limited share of theworld economy in terms of supply capacity and markets.

Clearly, theoretical reasoning suggests that globalization and openness along with other forces can foster harmonization in any direction: downward to the lowest common denominator. . .

Various forces are also at work to sustain a divergence in social policies. Lower-income countries, for example, may be caught in a ‘‘low equilibrium’’ trap rather than converging upward.

Although various forces foster downward harmonization, other forces, often associated with globalization and open economies, foster upward policy harmonization.

For such harmonization to occur and for it be to the lowest common denominator (i.e., to the jurisdiction with the least costly regulations and social policies). . .

Many of the same forces that are increasing the demand for social policies are also reducing the ability of governments to finance social policies.

The demand for social policy initiatives is increasing in part because of the interaction of three sets of interrelated forces. . .

Globalization and other forces are creating increased demand for social policies at the same time as they are restricting the ability of governments to supply such policies.

The role in smuggling of legitimate economic actors remains obscure. Legitimate importers and distributors are put at a cost disadvantage when required to compete with contraband.