How deep is your trade Transition and international.pdf

ab0cd How deep is your trade? Transition and international integration in eastern Europe and the former Soviet Union Ian Babetskii, Oxana Babetskaia-Kukharchuk and Martin Raiser Abstract This paper investigates the extent of integration of the transition economies into the world economy. We find that south-eastern Europe (SEE) and the Commonwealth of Independent States (CIS) trade significantly less with the world economy than the accession countries. We use a gravity model to explain why this is the case and conclude that the low quality of economic institutions in the CIS, and hence the high risks associated with trade, explain a considerable proportion of the “trade gap” compared to trade levels in industrialised countries. Moreover, the landlocked nature of many CIS countries (and hence high costs of transport and transit) is another reason for the lack of integration. In SEE these factors play a lesser role and the gravity model is unable to fully explain the lack of integration, which we suggest is a legacy of the region’s recent turbulent past. The paper suggests that a combination of improved market access to western markets and efforts to reduce trade and transit barriers within the region provide the best hope to increase economic integration with the world economy in the future. Keywords: Integration, gravity model, non-accession countries JEL Classification Number: F13, F15, P33 Address for Correspondence: Martin Raiser, The World Bank Resident Office, International Business Center, 107 В, Amir Timur Street, Tashkent, Uzbekistan. Phone: +998-71 138 5950; Fax: +998-71 138 5951, 138 5952; E-mail: mraiser@ The authors are: Ian Babetskii, graduate student at the Centre for Economic