Raising Armenia’s Export Potential
RaisingArmenia’sExportPotential KlakowAkepanidtaworn,LiliKarapetyan,NathalieReyes,andYuliaUstyugova. WP/22/214 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2022 OCT ©2022InternationalMonetaryFundWP/22/214 IMFWorkingPaper MiddleEastandCentralAsiaDepartment RaisingArmenia’sExportPotential PreparedbyKlakowAkepanidtaworn,LiliKarapetyan,NathalieReyes,andYuliaUstyugova AuthorizedfordistributionbyNathanPorter October2022 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT:RaisingArmenia’slong-termgrowthprospectsiscriticaltomeetthepressingneedforjobs,achievehigherlivingstandards,andarrestemigration.Armenia’slong-termgrowthprospectshaveweakenedsincetheglobalCOVID-19crisis,whilerecentglobalandregionalthegeopoliticaldevelopmentsaddednewshocks.ThispaperarguesthatthereisaneedtoboostthepotentialofthetradablesectorbyfocusingonproductswithhighercomplexitytosustainablyincreaseArmenia’sgrowthrate.Itprovidesanoverviewof Armenia’sexportperformance,analyzesfactorsandpolicyvaluablesthataffectexportoutcomesintermsofvolumesandcomposition,anddrawspolicyimplications. JELClassificationNumbers: F41,F13 Keywords: EmpiricalStudiesofTrade;TradePolicy Author’sE-MailAddress: kakepanidtaworn@imf.org,lkarapetyan@imf.org,nreyes@imf.org,yustyugova@imf.org *“Theauthor(s)wouldliketothank”footnote,asapplicable. WORKINGPAPERS RaisingArmenia’sExportPotential PreparedbyKlakowAkepanidtaworn,LiliKarapetyan,NathalieReyes,andYuliaUstyugova.1 1WearegratefulforinsightfulcommentsandsuggestionsfromNathanPorter,MoatazElSaid,FatenSaliba,KiichiTokuoka,andMariaAtamanchuk.AshorterversionofthispaperwasaSelectedIssuesPaper(IMF21/274),Chapter1,“PromotingExport-LedGrowth.” Contents I.Introduction6 II.Armenia’sExportPerformance7 III.Data&Methodology14 IV.Armenia’sExportPotentialanditsDeterminants20 V.Conclusion30 AnnexI.UnitRootTests31 References32 FIGURES Figure1.Armenia’sExportsandItsStructure10 Figure2:Armenia’sParticipationinGlobalValueChains11 Figure3:RevealedComparativeAdvantage13 Figure4:Armenia’sEconomicComplexity13 Figure5:Armenia’sExportCharacteristics28 Figure6:ExportComplexity:ArmeniaanditsPeers29 Figure7:DecompositionofChangeinExportComposition30 TABLES Table1:GlobalMarketShares,ExportofGoods8 Table2.GlobalMarketShares,ExportofServices9 Table3:SummaryStatistics15 Table4.ListofCountriesintheAnalysis16 Table5.MainVariablesintheAnalysis17 Table6:GravityEstimatesataCountryLevel21 Table7.ExportPerformanceRelativetotheModelbyCountry23 Table8:GravityEstimatesatasectorlevel24 Table9.ExportPotentialbyCountryandSector25 Table10.DeterminantsoftheExportsofGoodsComposition26 Table11.DeterminantsoftheExportsofServicesComposition26 Table12.ArmeniaTradeAgreements30 I.Introduction TheroleofexportsasadriverofeconomicgrowthinArmeniahasbeenunevenoverthepastdecades.Whilefast-growingexportsfueledArmenia'shighgrowthratesintheearly2000s,privateconsumptionandhousing-relatedinvestmentsubsequentlyovertookexportsasthekeyenginesofeconomicgrowthuntiltheGlobalFinancialcrisis,contributing6.9and6.5percentagepoints,respectively,totheaverageannualgrowthof11.6percentin2004-08.Theaveragecontributionofexportstogrowthduringthisperiodwasclosetozero.Onlyafter2009didexportsregaintheirroleasanimportantengineofeconomicgrowth,contributing3.6percentagepointstotheaverageannualgrowthof4.5percent. Armenia’spolicymakerswidelyrecognizetheimportanceofexportsasagrowthdriverasreflectedingovernmentpaststrategies.Thestrategyof2017-22aspired“toachieveasignificantgrowthinexportswiththeexportsofgoodsandservicesreaching40-45percentasashareofGDP.”Thestrategyof2019stipulatedthat“thesignificantgrowthofexportofgoodsandservicesmustbecomethemaindrivingforcefortheeconomicprogressinArmenia.Attheendoftheprogramperiod,exportsofproductsandservicesmustreach43-45percentofGDP.Atthesametime,therehastobeasignificantincreaseintheroleoftechnological productsinthestructureforexports”.Thelatestgovernmentprogram(2021)putsemphasisonpromotingexportsanddiversifyingexportmarkets.Thisistobeachievedbyexpandingexportinsurancetoolkit,developingtradeandeconomiccooperationwithEEU,implementingtheprovisionsandarrangementsfortrade-relatedissuesintheArmenia-EUComprehensiveExtendedPartnershipAgreement(CEPA),promotingbilateralandmultilateralcooperationwithintheframeworkoftheEUEasternPartnership,expandinganddeepeningcooperationwiththeWorldTradeOrganization(WTO). However,export-ledgrowthpersedoesnotnecessarilypromotehighersustainableeconomicgrowth.Thereareampletheoreticalandempiricalstudiesthatdiscussthebenefitsofinternationaltradeandpresentargumentswhysmallopeneconomieswithinsufficientmarketsizecannotoptoutthegrowthstrategiesorientedonexternaldemand.
