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Slovakia, as a small open economy, heavily relies on foreign demand for economic growth, primarily within the European Union (EU). To diversify its foreign trade, the country aims to explore export opportunities to Kazakhstan, a key economic player in Central Asia. Analyzing trade indicators, the study reveals substantial untapped potential, with Slovakia needing to focus on higher-value-added goods for export to overcome geographical distances and costs. In 2020, only 2% of the export potential was utilized, indicating significant room for growth.
The concept of comparative advantage, initially proposed by Ricardo, extends beyond higher productivity to include higher product differentiation in a country’s ability to produce specific goods or services. Evaluating comparative advantages is dynamic, influenced by factors like technology and human capital changes. The Balassa index calculates a country’s specialization in the production of goods, while authors like Hinloopen and Marrewijk, Vollrath, Yeats, among others, contribute to improving the RCA index. Research often uses RCA to analyze trade barrier effects, exemplified by Greenway et al., Goldberg, Menezes-Filho and Muendler, and McCaig and Pavcnik.
The competitiveness of countries and companies, discussed by Krugman, Prahalad and Hamel, Melitz and Ottaviano, and others, depends on meeting market requirements at a competitive price (Bas & Strauss-Kahn, 2014). Access to information on untapped export opportunities aids inclusive and sustainable economic growth, removing obstacles to export potential. Studies by Archiereev, Broncek, Ochieng et al., and Niazi and Nizami evaluate export potential between countries.
Foreign trade interactions involve inter-industry and intra-industry trade. Intra-industry trade, exchanging goods within the same industry, affects domestic prices and competitiveness. While the standard theory of comparative advantage doesn’t explain this, factors like economies of scale, imperfect markets, and consumer demands do. Grubel and Lloyd initiated the study of intra-industry trade, with subsequent contributions from Hamilton and Kniest, Brulhart, Crespo and Fontoura, and others.
Baccini et al. (2018) examine the impact of intra-industry trade on the political economy of trade, suggesting diverse effects on tariff reduction. Milner (1997) and Manger (2015) note that intra-industry trade can reduce competition between products. Krugman (1981) defines intra-industry trade as two-way trade within an industry, promoting prosperity but increasing competition and potentially forcing less competitive companies out of the market.
In analyzing the export potential of foreign trade between Slovakia and Kazakhstan, research focused on the historical development of their trade relations, employing selected competitiveness indicators. Despite significant geographical distance and distinct integration priorities, the years leading up to 2014 witnessed a peak in trade due to EU sanctions on Russia and Kazakhstan’s re-export operations within the Eurasian Economic Union.
It wasn’t until 2020 that the mutual turnover exceeded EUR 100 million, primarily driven by increased Slovak imports. The trade complementarity index revealed that Slovak supply complements Kazakh demand more than the reverse. Slovakia’s export potential to Kazakhstan, amounting to EUR 95.928 million, is concentrated in 56 goods, with the greatest potential in tractors and motor vehicle bodies.
Geographical distance and higher transaction costs suggest a focus on higher value-added exports. Notably, the Visegrad countries, including Slovakia, represent significant potential for trade and investment cooperation with Kazakhstan, extending beyond the automotive industry into services, IT, and areas like circular economics.
While Kazakhstan offers opportunities in defense, energy, and chemical industries for Slovakia, success depends on the competitiveness of Slovak products meeting local demand. The positive impact on Slovak exports to Kazakhstan hinges on sophisticated product offerings and adaptation to local needs, considering the competition from China’s New Silk Road initiative and historical ties between Kazakhstan and Russian producers.
Source:
Elena Kašt’áková & Anabela Luptáková (2023) Identification of export potential in foreign trade: case of Slovakia in Kazakhstan, Economic Research-Ekonomska Istraživanja, 36:1, DOI: 10.1080/07494467.2023.2277556