Trade Potential and Trade Integration of the Russian Far East: A Regional Perspective

Over the past decade, the Russian government has embarked on an ambitious program of economic development in the Russian Far East (RFE), envisioning the transformation of the region into a hub for trade with the Asia Pacific. This paper explores the extent of RFE’s trade integration with both key partners around the world and the rest of Russia. In particular, we calculate the region’s trade potential on the basis of mean predicted values from a gravity model using three samples that offer different perspectives. Actual trade flows are then evaluated relative to the potential and the resulting index is analyzed for various years and countries. Based on the findings of the paper, we can draw several conclusions. First, RFE exports to Northeast Asia have intensified over the period 2008–2017, allowing the region to surpass its potential, although there seems to be room to grow with respect to China. The Russian government could facilitate cross-border trade by further reducing non-tariff barriers and improving transnational infrastructure links. Second, the deepening integration with Northeast Asia has been achieved at the expense of trade links with the rest of Russia. This might appear worrisome, given the geostrategic importance of RFE for Russia. At the same time, it might simply reflect the fact that RFE’s natural resource exports are increasingly diverted to the Asia Pacific, which is more efficient than to ferry them to Western Russia, where they might end up being re-exported to Europe. Similarly, it might be more efficient for RFE to import from China than from more distant parts of Russia. Third, imports from Japan and Korea are far below potential, although these two countries can play a key role in promoting the economic development of RFE