I'lor th, rdbile capital goodE flot s stlll came largely from the North. On the side ofA,t40/5L9 Engli sh Page 56 exports, the main developing country purcha€ers of goods froo the South were theoore iddustrialized countries and oil-exporting countries. On the basis of thishistorical experience, it ls falr to examine prospects for further expangion ofSouth-South trade in the future, 136. For analytlcal purPoses, it is useful to consider balanced increases of traate between tleveloping countriea for non-capilal goods and services (on the assumptionthac regional import substitution of capltal goods rriu be technlcatly out of reachfor at leasE the nedium terol . rf, for exauple, developing countries A and B, each expor t a ni'rlion dollars'! vrorth of non-capital goods or servtceE to the other inp}.ce of purchages from the North, then both countries gain a milllon tlollars offorelgn exchange that can be used for aalditional capital goods iop9rt6, providedttlat tbere ls a slack supply conatraint ln both developing countrle6. ThE Northremains in trade balance (its reduced non-capital goodg exports to A and B beingrePlaced by capttal qoods), and if the developlng economles acguire the savingcounterpart of the increased investnenE represented by the netj ioports of capitalgooils, they can groe faster. llhus, dtverslon of traale fron North to South can beusetl to support econonic growth under a binding foreign exchange constraint. (Thisresult differs fron nornal prealictions of customs union. theory, which implicitlyassunea that forelgn exchange bottle-necks can alwaya be avoided by shlfts inLevers of competitive trade. The problem with this theory is that rlost imports ofdeveloping economies are essential. intermedlates or capital goods, nhich cannot bereduced nithout dlrectly affecting output or growth.)
**Analysis**
The text discusses the prospects of South-South trade and its potential to support economic growth in developing countries. It highlights the challenges of developing economies in acquiring capital goods and the importance of foreign exchange in their economic development. The text also touches on the limitations of traditional customs union theory in addressing the foreign exchange constraints faced by developing countries.

**Category**
International trade, Economic development