Geyikdagi 2005

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Regional Integration in Central Asia

a
Necla V. Geyikdagi
a
Yeditepe University , Erenkoy, Istanbul, Turkey E-mail:
Published online: 21 Sep 2008.
To cite this article: Necla V. Geyikdagi (2005) Regional Integration in Central Asia, Journal of Asia-Pacific Business, 6:4,
61-74, DOI: 10.1300/J098v06n04_05
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Regional Integration in Central Asia
Necla V. Geyikdagi
Downloaded by [University of Auckland Library] at 04:34 06 December 2014
ABSTRACT. Employing the diversification model used in portfolio

analysis, this study shows how an economic union of countries can cre-
ate a market with a more stable economic growth than the individual
countries taken alone. Even when the holistic effects of creating a larger
market are not taken into account, the mere combination of these econo-
mies with their existing structures creates a more stable whole. Since
foreign investors try to avoid political and economic risks, they prefer
politically and economically stable environments. If and when the Cen-
tral Asian countries form an integrated market, they may benefit from
the increased stability that is liable to attract more foreign investors into
the region, not to mention the other benefits arising from such an integra-
tion. [Article copies available for a fee from The Haworth Document Delivery
Service: 1-800-HAWORTH. E-mail address: <docdelivery@haworthpress.com>
Website: <http://www.HaworthPress.com> © 2005 by The Haworth Press, Inc.
All rights reserved.]
KEYWORDS. Regional integration, Central Asia, economic stability,

foreign direct investment, diversification model
INTRODUCTION
The purpose of this study is to show how an economic union of coun-

tries can stabilize the growth rates of the combined gross domestic product
(GDP), creating not only a larger but also a more stable market. Employing
Necla V. Geyikdagi is Associate Professor, Yeditepe University, Erenkoy, Istanbul,

Turkey (E-mail: neclag@yeditepe.edu.tr).
Journal of Asia-Pacific Business, Vol. 6(4) 2005
Available online at http://www.haworthpress.com/web/JAPB
© 2005 by The Haworth Press, Inc. All rights reserved.
doi:10.1300/J098v06n04_05 61
62 JOURNAL OF ASIA-PACIFIC BUSINESS
the diversification model which is widely used in portfolio analysis, the

possible effects of stabilization resulting from the merger of the four
Central Asian countries, Kazakhstan, Kyrgyzstan, Turkmenistan, and
Uzbekistan (KKTU), will be shown. While these individual countries have
often displayed strongly fluctuating GDP growth rates, the integration of
these countries can be expected to create a more stable combined market
with a greater potential to attract foreign direct investment (FDI). FDI can
contribute to the economic development of this region where capital, tech-
nology and capitalistic style management expertise have been absent for a
long time.
After explaining the importance of stability for economic develop-
ment, the paper gives an account of the KKTU economies and regional
integration efforts in Central Asia. Then, the model that demonstrates
the effects of integration will be described followed by an evaluation of
results.
ECONOMIC STABILITY AND GROWTH
One of the factors that determine the attractiveness of a country as an

investment site is its economic stability. Foreign investors are con-
cerned about instability, or economic risk, which can be defined as the
likelihood that economic policy will cause drastic changes in a coun-
try’s business environment, thus adversely affecting the profit and other
goals of business enterprises (Hill, 1997). Investors dislike politically
and economically unstable environments where imports are often cur-
tailed and currency restrictions may be introduced. If macroeconomic
measures lead to the slowing down of economic growth, companies’
sales opportunities may be negatively affected (Daniels and Radebaugh,
1997).
As de Haan and Siermann (1996) point out, most empirical studies have
found political instability to be an important hindrance for economic
growth as it discourages investments due to increased risk of capital loss,
causes capital flight, and leads to brain drain. It is also frequently noted that
since developing countries are politically less stable than industrialized
ones, they follow less stable economic policies. Brewer’s (1985) compara-
tive analysis of 19 large industrial countries and 19 large non-oil develop-
ing countries found that fiscal policy instability in developing countries
might be no less economically destabilizing than fiscal policy changes in
industrial countries. W. H. Buiter (1990) makes a comprehensive survey of
the literature on instability and underlines its crucial relationship to finan-
Necla V. Geyikdagi 63
cial and fiscal policies. Further, S. Dell (1991) covers the literature on eco-
nomic integration and shows that mergers among countries could yield
benefits such as economies of scale and holistic effects.
During the last three decades, multinational enterprises (MNEs) have
generally expanded into the fastest growing markets, and the ones in
which, they believe, the political and economic risks are the lowest
(Dunning, 1995). Even when a government is committed to attracting
foreign capital by launching a series of policy measures, local business-
men, unions, and ordinary citizens may turn against foreign investors
because of sudden negative changes in the economy, as was the case in
the late 1990s in South Korea (Schuman, 1998). Although many empiri-
cal studies found that economic growth was one of the most significant
location specific determinants, others show that the achievement of
high growth rates alone is not sufficient for attracting and keeping for-
eign investment (Root and Ahmad, 1979; Schneider and Frey, 1985;
Loree and Guisinger, 1995). Host countries should also strive to keep
the economy stable.
THE ECONOMIES OF KKTU
Until their independence from the Soviet Union in 1991, the econo-
mies of the four Turkic Central Asian republics, Kazakhstan, Kyrgyzstan,
Turkmenistan and Uzbekistan (KKTU), were all centrally planned to
produce mainly raw materials for the Soviet system. Although they in-
herited identical political and economic structures, political leaders
have opted for different economic development and transition strategies
after their independence. The Soviet Union’s main investment in the re-
gion was in education that has helped to improve the quality of the
workforce. However, the countries incurred heavy losses such as the
Soviet imposed specialization that assigned them a role as producers of
raw materials, and excessive environmental degradation and erosion
(Pomfret, 1998). Indirect transfers through the distorted low prices of
energy and other primary products they produced, deprived them of the
foreign income necessary to develop their mineral and industrial sec-
tors.
Although all of the first secretaries (eventually presidents) of KKTU
had been appointed by the Soviet leader Mikhail Gorbachev, once they
gained independence, these four countries followed very different eco-
nomic development strategies. The Kyrgyz Republic adopted a rapid
change policy in its transition to the market economy and developed the
most liberal regime in the region. Turkmenistan adopted an opposite

strategy with limited privatization and slow change with the presidency
having heavy control over all aspects of economic life. Kazakhstan’s
initial efforts were similar to Kyrgyzstan, however the increasingly au-
tocratic regime is now often described as “crony capitalism” (Pomfret and
Anderson, 2001). The tightly controlled political system of Uzbekistan
generated modest but successful economic reforms.
The natural resources possessed by individual KKTU countries are
generally not the same, despite some similarities. Kazakhstan raises

both grain and livestock in its vast steppes. The main crops are wheat,
cotton, sugar beets, and tobacco. Cattle and sheep are raised for their
wool, meat and hide. There are also rich fishing grounds, famous for
their caviar-producing sturgeon, in the Caspian Sea. Kazakhstan has
important mineral resources such as coal, oil, natural gas, iron, manga-
nese, chrome, lead, zinc, silver, copper, nickel, titanium, bauxite, and
gold. The major manufactured goods are iron and steel, mining and ag-
ricultural machinery, mineral fertilizers, chemicals, artificial fibers,
synthetic rubber and tires, textiles and building materials (IMF, 2001
and 2003a).
Kyrgyzstan also has rich pastures for raising cattle, sheep, goats and
horses. While grain is cultivated on the non-irrigated land, cotton, to-
bacco, sugar beets, potatoes, vegetables and fruits are grown in the re-
maining 80 percent of the irrigated land. Sericulture is also an important
economic activity. Energy sources, such as coal, oil and natural gas, are
available in small amounts. Gold extracted by the Kumtor mine ac-
counted for 40 percent of the country’s merchandise exports in 2001
(IMF, 2003b). Kyrgyzstan also has antimony, tin tungsten, mercury,
and uranium, though they are not as plentiful as in the other Central
Asian countries.
On the gradually privatized arable lands of Turkmenistan, cotton,
grains, fodder crops, fruits and vegetables are grown through irrigation.
The oil and gas industry as well as the cotton fiber and textiles dominate
the industrial sector. In both sectors, a large part of the production is re-
alized by large firms or joint ventures with foreigners (IMF, 1999). Ac-
cording to one report, between 1961 and 1980, more than 500 billion
cubic meters of natural gas were produced in the Turkmen Soviet So-
cialist Republic. Moscow exploited that production, but made few in-
vestments in infrastructure (Kuru, 2002), and sales gradually declined
because of delivery and payment problems. The overall economic activ-
ity is dominated by developments in the natural gas sector that has
traditionally generated the largest amounts of foreign exchange.
In the first half of the 1990s, natural gas exports made up 65 percent
of the total exports in Turkmenistan. This landlocked country’s major
buyer has been the unified gas supply system of the Union of Soviet So-
cialist Republics (USSR). When buyers were not able to buy, foreign
income from natural gas declined from 1.860 million dollars in 1993 to
71.7 million dollars in 1998, causing a 77 percent decrease in the total
export income (IMF, 1999). In addition to the ex-Soviet pipeline, a
short gas-trunk pipeline to Iran was completed in December 1997, and
other pipeline projects are being considered towards the countries in the
south and west of the country. In recent years, however, oil production
has increased, reflecting heavy investment in this sector, including that
of foreign companies. Turkmenistan’s large supply of sulfur and phos-
phate promise similar development of a chemical industry.
Uzbekistan’s primary agricultural products are cotton and grain. The
country is the fifth largest world producer and the second largest ex-
porter of cotton, which is cultivated on a third of its agricultural land
(IMF, 1998). Irrigation is extensively used for farming through a large
network of canals that divert water from the tributaries of the Aral Sea.
Other crops include wheat, rice, alfalfa, vegetables and fruits. Oil, gas
and gold production are the key elements of Uzbekistan’s economic de-
velopment. Silver, copper, other nonferrous metals and uranium are
also produced. Unlike other Central Asian republics, the industrial de-
velopment of this country increased during the Second World War
when machine production, especially aircraft production, was moved
from vulnerable locations of the western USSR to the Tashkent region,
making it the fourth largest city in the Union involved in high-tech in-
dustries (Pomfret, 1998). However, the industrial output, including ma-
chinery such as power transformers, compressors, cotton harvesters and
sowing machines as well as consumer goods like shoes, detergents, re-
frigerators and freezers has declined continuously. This decline was the
result of the dependence on the centrally planned supplier that did not
provide materials after the collapse of the Soviet system. Such unreli-
able relationships may be the reason why Uzbek authorities are insisting
on self-sufficiency and import substitution for inputs and final goods.
Nevertheless, Uzbekistan’s output decline since independence has been
exceptionally low compared to that of most other transition economies,
and prodded several researchers to investigate the reasons behind it.
This country’s mild “transformational recession” record was not a con-
trivance of the record keepers, but “largely accounted for by its
favorable initial production structure and its self-sufficiency in energy”
(Taube and Zettelmeyer, 1998; Zettelmeyer, 1998).
REGIONAL INTEGRATION IN CENTRAL ASIA
Almost all economists agree that unrestricted trade leads to special-

ization, hence larger and more efficient production of goods and ser-
vices. Economically integrated and free markets also attract more FDI
that, in turn, stimulates economic growth. The Central Asian republics
could easily integrate as a common market that would bring substantial
benefits to the countries’ consumers, businesses and governments.
• Transportation would be less costly and distribution channels

would be more easily established in these neighboring countries.
• Consumer preferences are similar as the majority of the peoples
share a similar language, a common religion, and a common history.
• When organized as a large economic group, the countries could
enhance their political weight in the region as well as in the world.
It will be wrong to think that the Soviet system had created some
intra-regional cooperation since Central Asia had been treated as a sin-
gle economic subdivision within the USSR. This integration of the Cen-
tral Asian republics within the USSR, however, did not provide the
region with adequate infrastructure to encourage commercial activities
with each other even after they gained their independence. Air and com-
munication connections for visitors were through Moscow. Railroads
and pipelines were not connecting these republics with each other, but
designed to get raw materials to the production plants, mostly located in
the Russian republic (Spechler, undated). In the 1920s and the 1930s,
when the Soviet Union’s main concern was to maintain political control
over Central Asia, it created five separate soviet republics with borders
which were not always drawn on economic and ethnic lines. The cre-
ation of an economic union would rectify this irrational division of land
(Spechler, 2000). For example, the Osh region of Kyrgyzstan would be
more accessible to the Uzbeks and would cease to be a source of irrita-
tion between the two countries. Also, a common agricultural and devel-
opment strategy would be more feasible for the Ferghana Valley, which
is divided among Kyrgyzstan, Uzbekistan and Tajikistan.
Members of the Central Asian group could jointly market their com-
mon resources, such as oil, natural gas, gold and other mineral and agri-
cultural outputs. They could receive the benefits of free trade when they
exchange their different and complementary natural endowments, and
specialize in production. For example, the Kyrgyz economy concen-
trates on marketing its scenic mountains, silk textiles and jewelry,
Turkmenistan might specialize in the food industry to process fruits and

vegetables grown in the Murgab and Tejen oases. The countries already
have considerable trade among themselves based on endowments that
have “natural complementarity.”
In the 1990s, there was a proliferation of pan-regional structures in
the region that started with the Commonwealth of Independent States
(CIS). The CIS has not realized its goals of promoting regional coopera-
tion. One important reason for this failure in creating a custom-free, in-
tegrated market for goods and services was its inability to overcome
natural tendencies toward opportunism and free-riding. However, there
were some ancillary effects, such as bureaucratic learning and the cre-
ation of a template for cooperative regional arrangements (Gleason,
2001). With no practical economic implications to the members, such
organizations continued to come into existence (EIU, 2004a). The ma-
jor organizations after the CIS are the Eurasian Economic Community
(Eurasec), including Belarus, Kazakhstan, Kyrgyzstan, Russia, and
Tajikistan, and the Shanghai Cooperation Organization (SCC) compris-
ing China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan.
The latter is mostly a geopolitical organization which is mainly con-
cerned with regional security. The Central Asian Cooperation Organi-
zation (CACO) was initiated in 1994 by Kazakhstan, Kyrgyzstan and
Tajikistan, and later joined by Uzbekistan with the purpose of creating a
combined market for their agricultural and energy products as well as
cooperating on using of their common resources.
CACO has the potential to become a successful economic group as
envisaged in this study. One political scientist from the region, F.
Tolipov (2004), fears that the Central Asian countries will continue to
be the “raw-material appendages” to the powers in the globalized world
as they were to the Soviet economic system in their recent past. He
maintains that “to avoid this they must abandon the inadequate concep-
tion of balancing and absolutizing national-state sovereignty for the
sake of a new, regional strategy.” It seems that the decision-makers in
the Central Asian region fully understand the necessity of regional co-
operation, and as such, try to promote cooperation. Political analysts
have recognized that the regional integration policy would lead to rein-
forcing the sovereignty of the individual states, thus enabling the
acceleration of economic growth (Gleason, 2001).
There are easily measurable benefits resulting from economic inte-
gration to the member countries, both individually and to the united
group. There are also holistic effects of integration that are more diffi-
cult to assess. In what follows, decreases in the fluctuations of economic

growth rates will be measured.
MEASURING THE STABILITY

OF ECONOMIC GROWTH RATES
The diversification model shows that an investor who puts his money
in a group of assets rather than a single asset is able to reduce the fluctu-
ations of returns, thus the risk of investment. Following the same logic,
if foreign (and domestic) investors invest in an integrated group of
countries rather than investing only in one of these countries, they face a
combined market with differing endowments and economic cycles
which is most likely to reduce fluctuations in economic growth. How-
ever, the major beneficiaries of such stabilization of the economy would
be the merging countries themselves. Brewer (1985) shows that insta-
bility brings significant negative political and economic effects, at times
resulting in crises. Stability, on the other hand, is likely to ward off
crises and promote sustainable growth.
Harry M. Markowitz (1952 and 1959) deftly applied the diversifica-
tion model to measure risk reduction effects of a portfolio made up of
different assets using the well known statistical theorem:
n n n
σ p = ∑ x i σ i + 2∑ ∑ X i X j σ ij
2 2 2
(1)
i =1 i =1 j =1
j≠ i
where sp2, n, xi, si2, xj, and sij respectively denote the variance of the
portfolio, the number of securities, the weight or proportion of security
i, the variance of asset i, the weight of security j, and the covariance be-
tween securities i and j.
Notwithstanding this model’s established usefulness in the analysis of
portfolios, it has not been applied to some other areas where stability is of
utmost importance. The stabilizing consequences of economic mergers
or unions among countries could be measured by this model. This study
aims at examining the usefulness of the technique by demonstrating and
implementing a specific example: The four Central Asian countries.
Just as investors like to reduce the financial instability (financial risk)
of returns from their investments by increasing the different kinds of as-
sets they hold, countries want to decrease economic instability (eco-
nomic risk) stemming from fluctuating growth rates by increasing the

number of members in an economic integration. Since the benefits of
economic stability are well established, the measurement of the possible
decreases in fluctuations engendered by the integration of diversified
economies is of crucial importance. The diversification model, as used
by Markowitz, is very appropriate for this purpose.
Risk can be measured by the variance or its square root, the standard de-
viation. The concept of risk reduction through efficient diversification
could be applied to countries willing to diversify their resources by merg-

ing with others. In its simplest form, one can examine the merger of coun-
tries with different growth patterns. The coefficient of correlation between
the growth rates of any two countries will be one of the determining factors
for stabilization. Obviously, if the coefficient of correlation is +1, meaning
that the two countries’ GDP growth rates move in complete unison, the
fluctuations or irregularities will not decrease. As a theoretical ideal, a coef-
ficient of ⫺1 would eliminate fluctuations completely. However, as long as
it is less than +1, a positive coefficient would also reduce fluctuations. The
farther away the coefficient is from +1 and closer it is to ⫺1, the greater the
reduction of fluctuations. Moreover, if two countries had totally stable
growth rates without any fluctuations at all, then their combined variance
would also be nil. That of course would be quite rare, if not unlikely.
Since the economic cycles of countries generally do not follow exactly
the same pattern, economic unions among them could also have a stabi-
lizing effect on the GDP growth rates. E. Lundberg (1968) explains that
the growth of the real GDP of a country does not follow a smooth path but
displays deviations or fluctuations around a path. Just as an individual
firm is exposed to changes in demand for its products or to changes in
supply conditions, a national economy may face similar conditions. Real
income in the economy as well as the price level may fluctuate. While one
country experiences an economic boom, another may have a recession, or
an unchanging economy, or a slow growth. Table 1 displays the growth
rates of KKTU which have experienced distinct growth patterns.
The model is applied to KKTU during the 1991-2003 period. In this
case, the combined variance of the GDP growth rates of Kazakhstan (K),
the Kyrgyz Republic (R), Turkmenistan (T), and Uzbekistan (U), becomes:
Var (K+R+T+U) = wK2 Var(K) = WR2 Var(R) + wT2 Var(T) +

wU2 Var(U) + 2 wK wR Cov(K,R) + 2 wK wT Cov(K,T) +
2 wK wU Cov(K,U) + 2 wR wT Cov(R,T) +
2 wR wU Cov(R,U) + 2 wT wU Cov(T,U) (2)
where wK, wR, wT, and wU respectively denote the GDPs of Kazakhstan,
the Kyrgyz Republic, Turkmenistan, and Uzbekistan as a proportion of
the total of the four. Likewise, Var(K), Var(R), Var(T), and Var(U) re-
spectively stand for the variances of the GDP growth rates of Kazakhstan,
the Kyrgyz Republic, Turkmenistan, and Uzbekistan. The same symbols
apply for the covariances shown by Cov(K,R), Cov(K,T), Cov(K,U),
Cov(R,T), Cov(K,U), and Cov(T,U). The data were obtained from the
United Nations Statistics Division reports.
RESULTS
As seen in Table 2, the results show respective variances of 77.76,
96.33, 117.59, and 23.82 for the growth rates of Kazakhstan, the
Kyrgyz Republic, Turkmenistan, and Uzbekistan. The combined vari-
ance of all four countries taken together, Var(K+R+T+U), is 45.85,
which is less than those of Kazakhstan, the Kyrgyz Republic, and
Turkmenistan, but higher than that of Uzbekistan. As explained earlier
in the paper, Uzbekistan had a very mild transformational recession
compared to the other ex-Soviet republics with much less fluctuations
in its GDP growth rates during this period. Therefore its variance is
lower than the combined variance of the four. However, this does not
TABLE 1. GDP Growth Rates of Central Asian Countries
Years Kazakhstan Kyrgyzstan Turkmenistan Uzbekistan

1991 –11.3 –7.9 –4.7 –0.5
1992 –5.3 –13.8 –15.0 –11.1
1993 –9.2 –15.5 1.5 –2.3
1994 –12.6 –20.1 –17.3 –5.2
1995 –8.2 –5.4 –7.2 –0.9
1996 0.5 7.1 6.7 1.7
1997 1.7 9.9 –11.4 5.2
1998 –1.9 2.1 7.1 4.4
1999 2.7 3.7 16.5 4.4
2000 9.8 5.4 10.0 4.0
2001 13.2 5.3 7.9 4.5
2002 9.9 0.0 9.0 4.2
2003 9.2 6.7 9.0 4.4
Source: United Nations Statistics Division (2004)
TABLE 2. Results
Kazakh Kyrgyz Turkmen Uzbek
GROWTH
Mean –0.12 –1.73 0.93 0.98
Variance 77.77 96.33 117.59 23.82
Stan.dev. 8.82 9.81 10.84 4.88
Covar(K,R) = 67.57 r(K,R) = 0.781

Covar(K,T) = 65.54 r(K,T) = 0.685
Covar(K,U) = 29.49 r(K,U) = 0.685
Covar(R,T) = 66.27 r(R,T) = 0.623
Covar(R,U) = 40.69 r(R,U) = 0.849
Covar(T,U) = 38.23 r(T,U) = 0.722
Var(K+R+T+U) = 45.85
necessarily mean that the country will continue to be that lucky over the
years. Its high dependence on energy, cotton and gold production and
exports still makes it vulnerable to natural events and external demand
and price fluctuations, making the GDP growth rates liable to unex-
pected oscillations.
These results show that mergers could have beneficial dampening ef-
fects on the fluctuations of GDP growth rates, thus increasing their sta-
bility. Coefficients of correlation, (r)s, between these countries partially
explain the lower combined variance. The coefficients r(K,R), r(K,T),
r(K,U), r(R,T), r(R,U), and r(T,U) are respectively 0.78, 0.69, 0.69,
0.62, 0.85, and 0.72. As explained before, the farther the coefficient is
away from +1 and the closer it gets to ⫺1, the more the risk reductions
from diversification are to be.
The coefficients show that during the measurement period the GDP
growth rates of Kyrgyzstan and Turkmenistan had the most dissimilar
pattern with the lowest r, which is equal to 0.62. The correlation coeffi-
cient between Turkmenistan and Uzbekistan show the closest move-
ments together with r equal to 0.85. In spite of its stable growth rates,
Uzbekistan would benefit from the integration of this emerging dy-
namic region. While international institutions have estimated stable but
lower GDP growth rates for Uzbekistan, the other three countries are
expected to have much higher rates. The GDP growth rate of Uzbekistan
in 2004 was 1.5 percent as forecast by the International Monetary Fund
and 3 percent by the Economist Intelligence Unit. However, the GDP

growth rates have been forecast as more than 9 percent for Kazakhstan,
over 11 percent for Turkmenistan, and between 6 to 7 percent for the
Kyrgyz Republic (EIU, 2004a, 2004b, 2004c, 2005d).
There is also a relative imbalance in the GDP sizes of the four
countries, with that of Kazakhstan being about 5.5 times that of
Turkmenistan and 6.5 times that of the Kyrgyz Republic. Had these
economies been closer in size, the reduction in instability would

have been even more pronounced. Countries, which contemplate
economic integration, have many factors or consequences to ponder
about. The possible stabilization of the GDP growth rates, being one
of these, could be measured with the help of the diversification
model. One may think that the stabilization effects of mergers would
decrease eventually as member countries harmonize their economic
policies. However, there would always be some benefits of stabiliza-
tion because of differences in natural and acquired advantages of
these countries.
CONCLUSIONS
The measurement of stability bears significant importance not

only for the merging countries but also for foreign investors already
there or planning to be in those countries. This study has shown that
the diversification model can be used to measure the stabilizing ef-
fect of an economic integration of countries. As the results of this
study indicate, such a union of the Central Asian countries can create
a more stable market, even when beneficial synergistic effects are as-
sumed to be absent. As the results show, the instability measured by
the variances of the GDP growth rates, is much smaller for the com-
bined region than for each of the individual states with the exception
of Uzbekistan which was unique among all of the transition econo-
mies in the former Soviet Union.
The Central Asian countries are within an opportune frame of time
and circumstances to carry out this integration. In addition to their com-
plementary endowments, they have a commonality of language, reli-
gion and culture. As the artificially drawn Soviet era borders are likely
to become more porous, a greater freedom of labor movement should be
expected.
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This article was downloaded by: [University of Auckland Library]

On: 06 December 2014, At: 04:34

Journal of Asia-Pacific Business

Regional Integration in Central Asia

To link to this article: http://dx.doi.org/10.1300/J098v06n04_05

PLEASE SCROLL DOWN FOR ARTICLE

ABSTRACT. Employing the diversification model used in portfolio

KEYWORDS. Regional integration, Central Asia, economic stability,

The purpose of this study is to show how an economic union of coun-

Necla V. Geyikdagi is Associate Professor, Yeditepe University, Erenkoy, Istanbul,

the diversification model which is widely used in portfolio analysis, the

ECONOMIC STABILITY AND GROWTH

One of the factors that determine the attractiveness of a country as an

THE ECONOMIES OF KKTU

most liberal regime in the region. Turkmenistan adopted an opposite

generally not the same, despite some similarities. Kazakhstan raises

REGIONAL INTEGRATION IN CENTRAL ASIA

Almost all economists agree that unrestricted trade leads to special-

• Transportation would be less costly and distribution channels

Turkmenistan might specialize in the food industry to process fruits and

cult to assess. In what follows, decreases in the fluctuations of economic

MEASURING THE STABILITY

nomic risk) stemming from fluctuating growth rates by increasing the

could be applied to countries willing to diversify their resources by merg-

Var (K+R+T+U) = wK2 Var(K) = WR2 Var(R) + wT2 Var(T) +

TABLE 1. GDP Growth Rates of Central Asian Countries

Years Kazakhstan Kyrgyzstan Turkmenistan Uzbekistan

Kazakh Kyrgyz Turkmen Uzbek

Covar(K,R) = 67.57 r(K,R) = 0.781

and 3 percent by the Economist Intelligence Unit. However, the GDP

economies been closer in size, the reduction in instability would

The measurement of stability bears significant importance not

Operations. Reading, Massachusetts: Addison-Wesley.

performance and future prospects. IMF Working Paper, (September), WP/98/132.

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