Comparative Analysis of Trade Explaining Factors: Evidence from Kyrgyzstan and Tajikistan

Abstract

The study examines changes in external trade patterns of Kyrgyzstan and Tajikistan, making sure to determine implications of these transformations on economic growth since independence. In doing so, the research identifies to what degree the traditional gravity model alongside its extended versions are able to explain bilateral trade flows of the two post-Soviet countries. The main focus is to outline chief determinants of international trade and to estimate trade potentials of the two countries by applying the Poisson Pseudo Maximum Likelihood estimator. Results highlight historical ties as the main determinants of high imports. Kyrgyzstan and Tajikistan import 92 and 89 percent less from countries with which they do not share common history. As of 2015, top trading partners with which Kyrgyz Republic has unrealized trade potential were China, Uzbekistan, USA, India and Germany. Tajikistan, in turn, was expected to trade more with Uzbekistan, India, Azerbaijan, United Kingdom and Czech Republic. No similar conclusions could be drawn on export capacity of the two countries, since factors explaining their relatively undiversified export lie beyond the scope of the gravity equation.