External & Intraregional Interactions of the Russian Far East: Comparative Assessment

Abstract

This paper argues that East Asia is becoming an increasingly important trade partner for Russia due to the need of the latter to diversity its external economic relations. The Russian Far East (RFE) shares a long border with the countries of North-East Asia, and its economic development is largely determined by the scale of cross-border economic activity. We use regional and international data to evaluate the trade relations of RFE with domestic and foreign markets over a ten-year period. The results indicate that RFE regions trade more intensively with the domestic economy than with adjacent countries. Over the entire sample period, RFE regions faced lower border hurdles in their trade with the rest of Russia than with the three Northeast Asian countries. In other words, trade between RFE and Russia was subject to a tariff equivalent of 44% relative to the trade within RFE. By contrast, the cost of trade with Northeast Asia was 57% higher than intraregional RFE trade. These tariff equivalents were not constant over time. In the years 2004-2010, border effects were higher with NEA again recording barriers that raised costs by 67%. In the period after 2010, barriers have decreased. In the case of NEA, the decline was 20 percentage points, while for Russia it was half that amount. We found that for RFE barriers have been on the decline but apparently the border costs in trade with NEA have been falling more drastically than with Russia.