An analysis of Trade relationship of Kazakhstan

An analysis of Trade relationship of Kazakhstan.

Баекенова А.

Казахстанско-Британский Технический Университет

Алматы, Казахстан

The development of the countries has always been one of the most interesting and thrilling topics in the world of Economics. Adam Smith was one of the first scholars in history of modern economic thought to study the phenomenon of economic growth. Smith presented his theory in his book “An Inquiry into the Nature and Causes of the Wealth of Nations”, or simply “The Wealth of Nations”, and argued for certain conditions for the economic growth of the country, such as freedom in the labor market, cultural intelligence and government protection. This question is always in the trend, as everybody want to find know-how of a successful country and its economy, everybody wants to understand why some countries are rich without any kinds of natural resources (e.g. Japan) while the others have lots of natural resources but don’t have enough capital and human resource to make use of them.

One of the scientists who tried to find his own approach to this topic was Montalbano, he made a research and his aim was to analyze the vulnerability of the macroeconomic indexes. He wrote a paper “Trade Shocks and Socioeconomic Vulnerability with an Application to CEECs”. Where he defined vulnerability as the forward-looking probability of experiencing a loss in the future relative to some benchmark of welfare due to uncertain events, or the "continuous forward-looking state of expected outcomes" (Alwang et al., 2001). While the trade shocks were presented by him as any exogenous factor to the economy of the country (e.g. market prices change due to crisis). He argued that these trade shocks together with the countries characteristics and its ability to manage the risk create the volatility of the social well being. One may ask why people would worry about social well being. The reason is that the development level of the country shouldn’t be measured only in terms of money country owns, but in respect of the people who live there. Montalbano uses different kinds of indexes in his studies, and the most common index for the social well being is the human development index – HDI.  He also tried to link the trade openness of the country and its economic growth.

Montalbano argues that the link between trade and economic growth was studied by several authors (Edwards, 1993; Frenkel and Romer, 1999; Dollar and Kraay, 2001). Firstly he stated that the technological change can be one of the positive outcomes of the open trade, as it gives an opportunity to buy innovative approaches in the global market and thus gives additional sources of both information and capital, as it also gives an opportunity to develop ideas that would be at the level of the market. However, there were scientists who argued that trade protection and different industrial policies in the market cut the link between necessarily trade and growth, they argued for investment into the economy and raising the human intelligence and active use of the technological trainings. Others compromise the first two issues and argue that long term growth could be reached in an application of the appropriate laws and policies as well as heavy investment and raise of human capital. They also argued that for the appropriate promotion of international trade (both ways) require specific education, appropriate infrastructure in the country, intelligent governance, absence of the corruption and support of the science and innovations. In my opinion economic growth depends on the initial position of the country, there is the theory presented by Galor and Zeira, which is an extension of a well known Solow model of economic growth. Thus they argue that the growth rate of the country depends on their initial position, as their model is multi-equilibrium, and if the country does not make a sufficient investment into the economy it will inevitably get to the lower (poorer) equilibrium, but as it reaches the critical point it would certainly start its development. I think that there is no ways country can develop with low investment; people always think of Japan when they talk of a country with insufficient resources, one more example might be Singapore. However both countries invested heavily into the human capital and internal structure and order, the law is rather strict there but it keeps people follow it and moreover it creates discipline and right understanding of what is allowed and what is not. They have a cultural barrier upon trespassing the law and thus a very low rate of crimes of any kind (criminal and financial). Thus I think that first of all growth starts with people, human capital, as having enough intelligence and education the resources of any country could be used in the most efficient way for the economy. Here arises second issue of an open trade: the country with a closed market could be compared to a child who studies at home, while the country with an open trade could be compared with a child who goes to school. The education of the second one is usually more efficient as he has an opportunity to learn different subjects from different points of view and moreover society helps this child to evaluate his strengths and weaknesses, and what is more important it creates more questions in his head. The same situation is with countries, a country with an open trade has an opportunity to see what other countries produce, how they promote and it gives a chance to compare and to understand what margins in the market exist and what the most efficient techniques are. Thus I agree with Mr. Montalbano that open trade positively affects the growth but I also admit that his colleagues are right in their position concerning the investment into the human capital.

All in all, I think that the examples of the western countries are not very appropriate goal nowadays, as the Eastern countries (Japan, China, Singapore) are of much more interest, as they created some ideology and national intelligence which pushes their economies forward, while in the USA the level of the education in general is not very brilliant if not to account to their Ivy League universities, graduates of which represent a rather small proportion of the population. It is noticed that nation in general degradates in terms of the knowledge and reasonable behavior. As for the European countries, they face a different problem as their nations get older, and there are a small proportion of young people, this also has a negative impact on human capital, which is in my opinion one of the main factors of the growth.

Indicators of foreign economic activity in Kazakhstan in 2006-2011.

In the analyzed period, the Republic of Kazakhstan had comparative advantages in trade with the rest of the world in trade of fuel, manufactured goods, agricultural and food products. At the same time, the growth of export specialization was observed only on the "fuel." The observed decrease in the competitiveness of the industrial goods was associated with a decrease in the index of revealed comparative advantage in the export of ferrous and non-ferrous metals.

Belarus has a comparative competitive advantage in agricultural and food products to industrial goods and machinery, equipment and transport. In this case, the first and the last group was an increase of comparative advantage, while there was deterioration on industrial goods.

Strengthening of export specialization in agricultural and food industry was due to the growth of competitiveness in the Russian market for meat and meat products, dairy products and sugar. Revealed comparative advantage in machinery and equipment has improved by strengthening the competitive position in the market of the three countries on special industrial equipment, machine tools, electrical machinery, and transport. The competitiveness of the group of manufactured goods declined by wood products, hides and leather products, and rubber products. It should also be noted that the Belarusian chemical industry began in 2002 is not competitive.

Russian export orientation remained unchanged and was focused on fuel, raw materials and semi-finished products (mainly paper and paper products, wood, raw rubber), machinery, equipment and transport (machine tools, telecommunications equipment, electrical equipment) throughout the period.

Thus, the countries of the Customs Union still represented as raw materials and products with low added value of trade with the outside world. Existing comparative advantages impose certain restrictions on the expansion of trade. Kazakhstan and Russia are specialized at the same products, which significantly reduce the potential for trade, supply of agricultural and food products from Kazakhstan to Belarus associated with high transport costs. On the other hand, special industrial equipment, machine tools, electrical machinery, and transport, the comparative advantage which is Belarus, will be in demand in the Kazakhstan market only if there is an appropriate output. Thus, the existing framework of the Customs Union in the export specialization establishes a situation in which countries trade mainly with Russia. For the intensification of trade with Belarus change the model of comparative advantage, which are based on the structure of the economy.

The main problem of Kazakhstan in relations with the countries of the Customs Union is that Kazakhstan has been and remains a net importer of trade with Russia and Belarus.

In trade with the countries of the Customs Union in 2009, there was a sharp decline as the total trade with the countries of the world. So, in 2009 trade with Russia amounted to 12 443.5 million, a decrease with respect to that of the previous year by 37.8%. The exports from Kazakhstan to the Russian Federation amounted to 3547 million for the 12 months of 2009, almost 43% less than the same period last year. Imports from Russia in January-December was 8 896.6 million, a decrease compared to the same period last year by 35.4%. With Belarus trade turnover in 2009 decreased by 25.6% compared to last year. Moreover, if the imports from Belarus has not changed (down 7.3%), exports from the country in RB decreased by 68%, resulting in a negative balance of trade has increased even more. 

In 2011, mutual trade of the Republic of Kazakhstan with the countries of the Customs Union was 24 526.7 million, or 40.8% more than in 2010 year, including export - 7 618.0 million (43 , 1% more), import - 16 908.7 million (a 39.8% increase).