Changing Trade Patterns after Conflict Resolution in the South Caucasus
Since the breakup of the USSR, the South Caucasus region has experienced a range of political conflicts, resulting in a number of hot and cold wars and border closures. The author analyzes the probably short-term impacts of peace in the region as a...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2001/04/1121145/changing-trade-patterns-after-conflict-resolution-south-caucasus http://hdl.handle.net/10986/19673 |
| Summary: | Since the breakup of the USSR, the South
Caucasus region has experienced a range of political
conflicts, resulting in a number of hot and cold wars and
border closures. The author analyzes the probably short-term
impacts of peace in the region as a result of a resolution
of the conflict between Armenia and Azerbaijan over the
Nagorney Karabakh region and an end to the associated trade
blockades, with an emphasis on Armenia, Azerbaijan, and
Georgia. The conflict has seriously distorted trade flows in
the region, disrupted transport routes, and stifled export
and import opportunities for Armenia and Azerbaijan. Georgia
has enjoyed higher-than-normal transit through its
territory. Trade has stopped in gas (from Azerbaijan to
Armenia) and electricity (from Armenia to Turkey). Transport
tariffs are unusually high, aggravated by government-imposed
transit fees (taxes). Over time, trade restrictions have
eased and trading partners have found ways to conduct trade
despite closed borders and blockades--but at a cost.
Applying a gravity model to regional trade, the author
concludes that South Caucasus countries trade enough with
the CIS countries and politically friendly neighbors, but
too little with the European Union, the United States, and
hostile neighbors. Lifting the blockades would alleviate
trade distortions and bring about short-term improvements,
including: 1) More rational trade flows; 2) A resumption of
(or an increase in) regional trade in major commodities such
as energy; and 3) Lower prices or higher profit margins (or
both) on some important consumption and production goods.
With peace, Armenia could more than double its exports if
Azerbaijani and Turkish markets open, which could reduce
Armenia's trade deficit by a third to a half and
increase its GDP by 30 percent. Improving transport routes
would produce immediate savings and relieve pressure on
domestic prices, especially for energy. Azerbaijan could
increase its exports by $100 million, or 11 percent of 1999
levels, reducing its trade deficit by a quarter and raising
its GDP by 5 percent. Its exports and imports would benefit
from transport savings. Transit through Georgia might
decline, but probably not by more than a quarter of the
freight service surplus. |
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