How does regional economic integration impact trade in small economies? Evidence from Armenia and Kyrgyzstan’s EAEU accession

Abstract

The debate over economic integration and its effect on small economies remains a contested issue. While economic unions can foster trade creation and growth, they also pose risks of trade diversion and unequal gains. These concerns are particularly relevant for small post-Soviet economies yet remain understudied. This study examines the impact of Armenia’s and Kyrgyzstan’s accession to the Eurasian Economic Union (EAEU) on their trade using a Dynamic Multilevel Model with a Latent Factor term. The findings indicate that EAEU membership increased aggregate exports in both countries, with stronger effects in Armenia. Armenia also experienced a significant rise in agri-food exports, while Kyrgyzstan’s agri-food imports declined. No definitive effects were found for aggregate imports, Kyrgyzstan’s agri-food exports, or Armenia’s agri-food imports. We attribute these variations in trade gains to persistent intra-union trade barriers, new external trade restrictions, and differences in the structural composition of exports. The study contributes to the limited literature on post-Soviet economic integration, employing a Bayesian quasi-experimental approach to enhance causal inference. By analyzing the EAEU’s impact on Armenia and Kyrgyzstan, we provide insights into the trade-offs of regional integration for small economies facing increased market access and evolving trade barriers.