Policy Briefs

Georgia and Armenia: Not Trading Anymore?
Friday, 22 April, 2016

A dramatic y/y decline (44%) in Georgia’s 2015 exports to Armenia was the subject of a study by ISET-PI and the German Economic Team (GET). Our goal was to understand the extent to which this slump resulted from Armenia’s agreement to join the Eurasian Economic Union in 2014 (as part of this agreement, Armenia applied new trade barriers on imports from non-EEU countries in 2015).

An alternative explanation concerns the change in the terms of trade with Russia and Armenia. With the Russian ruble sharply depreciating in the course of 2015, Russian non-oil products became much more competitive in international markets, including Armenia.

The study overviews Georgia’s export structure and the key changes it has undergone in 2014-15. The lion’s share of the decline in Georgian export to Armenia is found to be caused by a sharp contraction in car re-exports (-69% y/y). The paper goes on to analyze possible future changes in the trade regime between the two countries and their effect on Georgian exports.

Our conclusion is that Armenia’s EEU membership did contribute to the drop in Georgian car re-exports in 2015 through non-tariff barriers and trade diversion generated by the EEU. The medium-term impact (2016-2019) on Georgian exports is predicted to be low compared to 2015. However, in the absence of countervailing policy measures, exports are likely to be severely hurt in the long run (from 2020 onwards).

Since September 2014, the ISET Policy Institute has been working with the German Economic Team (GET). In May 2015 ISET-PI and GET extended their partnership and began working on a variety of policy briefs for Georgia's industrial development. These briefs will simultaneously advance research in the sector and provide the Georgian government a set of guidelines for the development of its own policy, exploring where Georgia's comparative advantages lie. The German Economic Team is a consulting group that provides advisory services to the Georgian government on economic policy and is supported by the German Federal Ministry for Economic Affairs and Energy.