The (Re)Emergence of Regional Economic Integration In the Former Soviet Union

This study examines the consequences of the collapse of the unified Soviet market at the end of 1991, the dilemmas of choice generated by the economic and political costs and benefits of reintegration with different states, and the resulting attempts to create new forms of economic cooperation. A gravity model is used to determine whether these new forms of cooperation have had a positive impact on the members' bilateral trade. This reveals that in the first few years of its existence membership in the Commonwealth of Independent States has not generally had a positive impact on trade, while membership in the Baltic Free Trade Association and the Central Asian Commonwealth have, although they are composed of small states which produce similar products and, in the case of the Central Asian Commonwealth, are at a lower level of development. Since World War II, the international economy has been characterized by growing economic integration. Some states, either singly or in concert, have begun to dismantle barriers to cross-border transactions in order to reap the benefits of trade. Neoliberals argue that "the voluntary sacrifice of sovereignty for collaborative problem solving does not require a state to sacrifice its interests" (Kegley 1993: 142; also Keohane and Nye 1977). However, even from this viewpoint, it is clear that there is some tension between the economic benefits of intensified trade and the political costs of decreased policy autonomy which result from increased economic integration. Moreover, despite the success of the European Union (EU), economic integration has proven more difficult to attain and maintain among less developed states in Africa and Latin America. Nowhere are the obstacles to integration more evident than in the former Soviet Union where fifteen states of varying sizes and levels of development determined to protect their newly gained sovereignty struggle with the disastrous consequences of the collapse of a unified market.l Although the West has advocated reintegration as a partial solution to the region's economic problems, these states have been skeptical about the benefits. Nonetheless, new forms of regional cooperation have emerged since 1991. The success of these cooperative arrangements can be measured in many ways, and this study focuses on one such measure: whether they increase the level of bilateral trade among the members.2 The study first examines the consequences of the collapse of the Soviet market at the end of 1991. It then discusses the economic and political costs and benefits of reintegration. Although the international political economy literature has focused much attention on why states choose to cooperate despite the tension between sovereignty and economic benefit (e.g., Krasner 1983; Keohane 1984; and Stein 1990), state choices have largely been portrayed as dichotomous-cooperate or not cooperate. In reality, the choices faced by the former Soviet republics, in particular, are more complex. They must not only decide whether to cooperate but also with whom to cooperate and how deeply to cooperate because the political and economic costs and benefits of cooperation vary with the size and level of development of the partners as well as the depth of the proposed cooperation. Therefore, these states are faced with rationales for competing options which Stein (1990) refers to as dilemmas of choice. After identifying the institutions which have been created with the goal of achieving some degree of economic reintegration, the study uses a gravity model of trade to examine whether these cooperative efforts have had a positive impact on interrepublic trade. This model makes it possible to control for the natural economic determinants of trade such as size, level of development, and proximity. CONSEQUENCES OF THE COLLAPSE OF THE SOVIET MARKET The Soviet Union consisted of fifteen tightly integrated republic economies. Trade flows were centrally planned, and prices were set administratively In 1988, interrepublic trade amounted to 21 percent of gross domestic product (GDP), far more than in the EU (IMF 1991: 1,193). …