IfW Press Release February 6, 2007

New Competitors from Central Asia?

Matthias Lücke and Jacek Rothert have conducted a study entitled “Central Asia’s Comparative Advantage in International Trade” (Kiel Economic Policy Paper No. 6). In this study, they attempt to determine what role the countries of Central Asia (i.e., Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, as well as Azerbaijan and Mongolia) might come to play in the international division of labor. Will they become serious competitors in world markets?

The answer is not very positive. The study shows that these countries have played little role as sites for the types of labor-intensive production that have moved from the Western European industrialized countries to the reforming countries of Eastern Europe and the Asian threshold countries. And in the resource-rich Central Asian countries, such as Kazakhstan and Azerbaijan, wages are now higher than in competing countries, such as, for example, China. Further, the Central Asian countries are remote, far from any major sea ports, which is a definite locational disadvantage.

So what are the prospects of these countries? It would already be of some help to these countries if they could increase the vertical integration of their production and thus throw off their image of being merely resource suppliers. For example, it would be lucrative for these countries if they were to supply processed cotton products, such as yarn, rather than raw cotton to the textile producers in China or Hong Kong. Presumably, Russia and the CIS countries could also be large markets for high-value products from Central Asia, and the Central Asian countries could use the trade relations that were developed in the old Soviet Union to tap these markets better. Nonetheless, the study shows that the Central Asian countries will hardly be able to raise their profile in world markets any time in the foreseeable future.

Author’s contact information:

Dr. Matthias Lücke
Phone ++49+431-8814-497