Economic sciences/2. Mathematical methods in economics.
Economics theory. State regulation of economy. Macroeconomics.
Orazalin Rustem, PhD doctoral candidate
Turdalieva Aigerim, student
Al-Farabi Kazakh National University, Kazakhstan
Empirical assessment of the Customs Union’s impact on the growth of
Kazakhstan
I.
Introduction.
Growth effects of external
trade liberalization have become a center of researchers’ interest for recent
decades. Large number of trade economists proved that technology and investment
are the two channels through which trade increases economic growth and
productivity, hence provide a ground for positive effect of trade (Grossman and
Helpman,1990 and 1991; Rivera-Batiz and Romer,1991a and 1991b; Romer,1990;
Baldwin and Seghezza, 1996a and 1996b; Baldwin. 1992). So Dollar, (1992),
Edwards (1992 and 1993), Vamvakidis (1998) found evidence that international
trade positively effect economic growth providing an empirical evidence for
trade-induced investment led growth. On the other hand, Coe and Helpman (1995),
Coe, Helpman, and Hoffmaister (1997), Bayoumi, Coe and Helpman (1999) showed
that trade affects growth via technological progress.
Concerning the growth effect
of economic integration, the results of studies on the economic integration and
growth relationship are mixed. So Henrekson, Torstensson, and Torstensson
(1997), Ben-David (1993), Badinger (2005) suggest that European regional
integration has a positive growth effect. On the other hand, Vamvadakis (2002)
shows mixed evidence on the effects of economic integration on growth. In
contrast De Melo et al. (1992) found that regional integration does not have long-run
growth effects except some cases (Southern African Customs Union). Similarly,
Vanhoudt (1999) found no growth effect of European Integration.
The aim of this study is to investigate
the effect of economic integration on growth without consideration of a focus
on a specific production factor (K, L) testing the impact of the Custom’s Union
(CU) on growth[i]. Empirical
test of growth induced by the external trade of Kazakhstan with the Customs
Union will be performed by using external trade indicators (export to and
import from other CU member countries (Russia, Belarus) before and during
forming CU (2006-2011)).
The remainder of paper is
organized as follows: Section II presents trade liberalization experience of Kazakh
economy and Kazakhstan’s relations with CU. In section III, results of
estimated econometric model are introduced. The last section concludes the
analysis.
II. Trade Liberalization, Import and Growth in Kazakh
Economy.
During the last two decades
Kazakhstan has become more open to international trade, as tariff and
non-tariff barriers have been lowered. Exports are dominated by fuel and
energy, while imports consist primarily of machinery and food. China, Russia
and the EU are the key trading partners, while trade with Central Asia remains
low. The recently created customs union with Russia and Belarus can bring
benefits from greater access to markets (IMF, 2011).
In the almost two decades
since the break-up of the Soviet Union, Kazakhstan has gradually become more
open to international trade. The increase in openness has not been linear, and
was interrupted by various adverse events. The standard indicator of trade
openness (measured as the ratio of total trade in goods and services to GDP),
which dropped from around 80 percent in mid-1990s to slightly over 60 percent
in the aftermath of the 1998 financial crisis, rebounded strongly in the
2000s, and remained between 90 and 100 percent for most of the decade. This
increase was mainly driven by exports, which reached 56 percent of GDP in 2008.
The increase of trade openness
in 2000s coincided with Kazakhstan becoming a major oil producer and exporter.
Oil production started in 2000, and by 2010 it exceeded 82 million tons per
year (about 1.7 million barrels a day). Therefore, a big share of the increase
in trade was driven by oil exports, as well as increased exports of gas,
metals, and several other commodities. In value terms, exports of oil increased
from 43 percent of total exports in 2002 to 57 percent in 2010.
Nevertheless, the increase has
also likely reflected the genuine tendency toward trade liberalization. Both
tariff and nontariff barriers were reduced, and the index of trade freedom
increased significantly, outpacing the increase in the index of overall
economic freedom.
Before the creation of the
customs union in 2010, Kazakhstan’s average tariff rate was relatively low at
around 5 percent, and compared favorably with many other transition and
emerging economies.
In November 2009, the
governments of Belarus, Kazakhstan and Russia signed an agreement to create a
customs union. The authorities see it as the first step to a single economic
space, which became operational on 1 January 2012. While driven primarily by
political considerations, this new arrangement is intended to maximize the
benefits of the already strong trade relationship and an enlarged market. The
agreement came into force in January 2010, when the three countries eliminated
most duties on mutual trade, and moved to harmonize customs rules. In July
2010, member countries adopted a common customs code, finalized customs rules,
and began to redistribute collected duties.
Since the customs union has
been in operation for less than a year, it is too early to evaluate the impact
on the direction of Kazakhstan’s trade. Some trade diversion effects could be
expected in the long term, as higher import tariffs may induce Kazakhstani importers
to start switching to suppliers within the customs union. These effects are
likely to be small, however, since trade with other CCA countries is already
minimal, while China holds a large cost advantage compared to alternative
suppliers, and trade with it is not likely to be affected by an increase in
tariffs.
III. Model and Estimation Results.
In this paper our main focus
is to investigate growth effect of trade between CU countries and Kazakhstan.
As an international trade
variable we use import variable. In the literature, various studies use import
variable as the determinant of growth (Marwah and Tavakoli 2004; Bayoumi, Coe
and Helpman 1999; Sjoholm 1999; Levine and Renelt 1992; Lee 1994; Coe and
Helpman 1995 Ferreria and Rossi 2003).
We tried to investigate the
effects of import with CU countries on GDP especially after CU.
|
Dependent Variable:
LGDP[ii] |
||||
|
Method: Least Squares |
||||
|
Sample: 2006 2011 |
||||
|
Included observations:
6 |
||||
|
Variable |
Coefficient |
Std. Error |
t-Statistic |
Prob. |
|
C |
10.66736 |
0.327147 |
32.60723 |
0.0000 |
|
I_CU[iii] |
0.008545 |
2.58E-05 |
3.311012 |
0.0296 |
|
R-squared |
0.732670 |
Mean dependent var |
11.72674 |
|
|
Adjusted R-squared |
0.665838 |
S.D. dependent var |
0.289062 |
|
|
S.E. of regression |
0.167097 |
Akaike info criterion |
-0.479277 |
|
|
Sum squared resid |
0.111686 |
Schwarz criterion |
-0.548691 |
|
|
Log likelihood |
3.437832 |
F-statistic |
10.96280 |
|
|
Durbin-Watson stat |
0.841141 |
Prob(F-statistic) |
0.029626 |
|
According to the results,
import volume is significant with positive sign (p-value is 0.0296). 73.3% of
variance in the GDP explained by trade from CU countries. Overall F-test
statistic for the model is significant as well at 5% level (0.029626). So a
percentage increase in model concludes that a one percent increase in import
from CU countries would yield a 0.85% increase in growth (gross domestic
product).
The results reported confirm
the positive relationship between the import from CU countries to Kazakhstan
and GDP, however it is not obvious whether it was induced after establishing a
Customs Union or it follows the trend which was already existing.
IV. Conclusion.
In the literature recent
studies claims that trade liberalizations and economic integration may cause
growth gains as well as the level effects. It is claimed that long run growth
effects are the results of technological changes. The mechanisms by which
technological change achieved are: international spillover of knowledge,
increased competitive pressure, embodiment in imports and scale effects.
The findings are consistent
with the view that the trade liberalizations and economic integration may cause
growth gains. However it should be noted that it was hard to distinguish the
effect of economic integration, since the trade patterns were the same as it
was before the creation of the CU. Within the customs union, larger benefits
could come over time from liberalization of services sectors and improved
market access within the union (Isakova and Plekhanov, 2012).
Further, a number of
simulations suggest that gains from further liberalization within the customs
union could be substantial (World Bank, 2011). Importantly, service sector
liberalisation would benefit other members of the union as well (see, for
instance, Jensen, Rutherford, and Tarr (2007) and Tarr and Volchkova (2010) on
Russia).
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