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A Phased Strategy for Opening Armenia’s Western Border. Armenian International Policy Research Group Torosyan, Gagnidze, Beilock. Introduction. This study: outlines a plan to open Armenia’s borders with Turkey examines likely changes in trade flows between Armenia and Turkey
Armenian International Policy Research Group
Torosyan, Gagnidze, Beilock
Polyakov “Changing Trade Patterns after Conflict Resolution in South Caucasus”, 2001
AEPLAC’s “Study of the Economic Impact on the Armenian Economy from Re-Opening of the Turkish-Armenian Borders”, 2005
Currently almost all overland trade between Armenia and Turkey takes place via Georgia.
There are two major border passages that are being used for Armenian trade with Turkey:
An additional passage that is sometimes used is G3 south-west of Akhalkalaki.
No railroad between Georgia and Turkey.
There are at least six potential border crossings by road and one rail connection between Armenia and Turkey.
Stage I: Opening two passages to handle initial traffic and test systems.
A1 – Metsamor
A2 – Gyumri
Stage II: As traffic volumes increase, both countries could set up additional border crossings. Options:
A3 - Margara village
A4 - Bagaran village
A5 - Haykadzor village
A6 - Paghakn village
What are some of the potential benefits of open borders to the following countries of the region?
The scenario around which the project has been developed is the opening of borders between Turkey and Armenia, but not between Azerbaijan and Armenia.
However, Turkey closed the border in support of Azerbaijan. Ending it without Azerbaijan’s acquiescence would be politically difficult, at best, and more likely impossible.
To have Azerbaijan’s consent, concessions favoring Azerbaijan could be negotiated.
Our study assumes that full cessation of the closed border between Armenia and Azerbaijan (“mainland”) is impossible.
Fortunately, the main east-west rail line and roadway connect Armenia and Azerbaijan via Georgia => carriers and freight can transit between Armenia and Azerbaijan without crossing a common border.
With an open border between Armenia and Turkey, Turkish carriers would be free to transit Armenia, improving linkages between Azerbaijan and Turkey.
Armenia’s rail system also could carry transshipments of freight bound to or from Azerbaijan.
There would have to be
Armenia could consider effecting a partial opening of the border with Nakhichevan. This might be conceived of as Stage III of a phased opening, giving better access to
Because of the closed border, Georgia has had a virtual monopoly over surface freight movements to and from Armenia.
For many years Georgia levied surcharges on all freight to and from Armenia. Recently Georgian government has taken steps to lower transit fees for Armenian trade, and also to limit unofficial payments on the road.
Virtually all freight moving between the West and Azerbaijan uses Georgian roads or rails and its ports.
Open borders between Armenia and Turkey may reduce the volumes and/or premiums for Georgia from Armenian transit traffic, but is unlikely to threaten transit trade to/from Azerbaijan going through Georgia.
If transit traffic through Nakhichevan were permitted, Georgian importers and exporters would benefit from improved access to Iran and the Gulf States.
Georgian importers and exporters would also benefit from improved road and rail access to some parts of Turkey.
There is a possibility of negative effects of export diversion for Georgia when Armenian-Turkish border opens. The magnitude of this effect would depend on how much overlap there might be between Georgian and Armenian exports to Turkey.
To determine the extent of that overlap we use export similarity technique, also known as Finger-Kreinin Index (FKI).The index ranges from 0 (no overlap) to 1 (complete overlap).
Armenian and Georgian export flows to the EU in 2004 did not have a big overlap: FKI is calculated to be 0.182=> Armenian and Georgian goods are not very close substitutes in European markets.
Products that do overlap either have a small share in overall exports in both countries, or are homogeneous in nature =>
Development of Armenia-Turkey trade will not have a very strong diversion effect onGeorgian exports to Turkey.
Opening the border with Turkey will allow shortening of travel distances to
Railroad from Gyumri will allow convenient access to Greece (Thessaloniki) and other European counties.
Trade benefits from open border would be magnified if road and rail transits through Abkhazia were also restored.
To assess potential trade flows between Armenia and Turkeya gravity modelis developed and estimated. Model features:
Our model explains 75-80% of total variation in trade for sample countries. Most of the coefficient estimates are highly significant and are in line withexpectations.
To check the robustness of our results we estimate Armenia-Turkey trade volumes for 2004 and compare them with actual data:
Imports from Turkey $33,887,690 $37,498,051Exports to Turkey $3,918,173 $1,200,233
After obtaining gravity model estimates we calculate the increase in trade that will result from border opening
If we adjust distance as well to reflect shorter travel time increase in trade volume is likely to be even higher:
Our estimates are for 2004 levels of GDP and GDP per capita. However, due to
we are likely to observe a further expansion in Armenia-Turkey trade relations.
GDP growth rates in 2005 were 5.6% in Turkey and 13.9% in Armenia. This would increase our exports estimates to Turkey by 23.8% ($1.3 mln.), while imports from Turkey would be 20.8% higher ($14 mln.)
In addition, we should take into consideration the fact that with open border there will be railroad connection between Armenia and Turkey, which is not reflected in our model. Hence, there is another important factor that will influence trade volumes between our two countries.