Economic analysis of landlockedness applied to Central Asia Presentation of a PhD thesis, Sorbonne University Gaël Raballand, graballand@worldbank.org, April 2004

Post-Soviet Central Asia

The landlockedness issue In the former Soviet Union space, out of fifteen countries, nine are landlocked, Until this year, researchers neglected this issue for CIS economies, Transport costs seem to have a major impact on trade flows in the region.

Geographers’ views Landlocked definition: « a land region, having no access to a waterway », Fundamentally a political problem (Doumenge, 1986, Raynaut, 1989), Landlockedness scales (Doumenge, 1986), Small countries with limited resources, Impact can be relative in the long term cf.Sahel (Debrie, Steck 2001).

The economists approach Distinction between « geographically » and « economically landlocked », Ways not be economically landlocked: air transport, waterways… Prone to development delays: only 2 out of 38 landlocked countries are high income economies, Maritime economies (Vigarie, 1995, Crafts 2001).

Landlockedness and transport costs Radelet and Sachs (1998): transport costs higher by 50% for LLC/coastal countries, Stone (2001): in Africa, ¾ LLC have higher transport costs than coastal countries, Limao and Venables (2001): transport costs twice higher, trade deficit equal to 70%.

The Central Asian Case: (1) The caravan trade era The importance of caravan trade for development of Central Asian economies According to Steensgaard (1973), caravan trade cheaper than maritime trade until XVIth century (5% against 20% for maritime transport for a silk cargo). 1597 turn and the beginning of the decline of caravan trade. The consequences: gradual integration to Russia through cotton imports from Central Asia during Tsarist period.

(2) A new centrality during the Soviet times The political conception of transports in the Soviet doctrine (Lenine 1918, Khachaturov 1959). Consequences: considerable transport investments in Central Asia, But excessive transport demands (Tursunzade case), And a complete integration to Russia.

(3) (Re)emergence of a landlocked syndrome Regular transport costs increase since 1991 (factor 86 in 1992/15 for inflation) The negative consequence of the Soviet model: International transport limited through Caspian sea (3% of the total Kazakh freight). Air freight tiny (2% of Uzbek SSR freight) Limited containerized trade (2% of the rail traffic in Kazakhstan). Overexploitation of the network and rolling stock.

The hypotheses for measuring the impact What matters for the impact? Distance from a major port, Ability to export through alternative routes, Number of border-crossing.

The measurement of the landlockedness effect Four measures use of dummy variable shortest distance with a main port (geographical measure) number of coastal adjacent countries (bargaining measure) - number of border-crossings (transport facilitation)

Database and Results database: 46 countries over the period 1995-1999 Econometrics: panel analysis in two steps, following Wall (2002). Four measures confirmed empirically Trade deficit around 80%/ coastal country all things being equal, close to Limao and Venables (2001) When all combined, the most robust measure is the number of border-crossings

Transport costs study in Central Asia Maritime transport remains cheaper than land transport Remoteness from markets (1000 USD lump sum) Infrastructure problems: containerization has decreased between 1997 and 2001 The border-crossing problem The ‘stan’ premium for the insurance

The different transport corridors today The south route and the Bandar-Abbas problem The TRACECA route: the ‘oil and spirit road’. The transshipment cost: for a TEU Korea-Germany, 4400 USD with TRACECA, 1490 USD with maritime The Chinese route expansion The Russian route still very active.

The regional groupings

Lessons for Central Asian economic integration - Trade hysteresis among countries of the FSU space, - CACO does not seem to be the most appropriate regional grouping in order to boost substantially trade in the region. - Potential trade with Central Asian southern flank but today trade potential remains largely unachieved and, still today, regional groupings, which include Russia and China are the most economically significant (EEC and SCO).

How to cope with transport costs burden in Central Asia? Regional integration to ease the transit regime. The Eurasian Economic Community prospect, Transport facilitation with easier border-crossing. The Kazakh/Kyrgyz example, A corridor approach in Central Asia? But a necessary condition, which is the political will…

Central Asia in Eurasia