The Effects of Tajikistan’s Accession to the Common Economic Space of Belarus, Kazakhstan, and Russia on Its Agricultural Sector Under Official and Depreciated Exchange Rates

Tajikistan is planning to join the Common Economic Space (CES) of Belarus, Kazakhstan, and Russia in order to benefit from free movement of capital, goods, especially the labour force. Labour migrants abroad are equivalent to 15 percent of country’s population, 28 percent of the labour force, and 50 percent economically active population. Migrant remittances in Tajikistan are the main drivers of economic growth that induces currency appreciation. This paper, using a Partial Equilibrium Model, assesses the effects of Tajikistan’s accession to the CES on the country’s agricultural sector at official and depreciated (experimental) exchange rates. The latter enables testing the Marshall-Lerner Condition (MLC) and are calling to emphasize the cost of remittances-induced currency appreciation to producer, consumer, state budget, agricultural value added and balance of trade. The overall welfare effects of CES accession on the agricultural sector are positive under both exchange rates. Producer and overall gain at depreciated exchange rate exceeds the gain at official exchange rate by 34 percent, while consumers gain almost 2.9 times less under depreciated exchange rate. Budget losses are 15 percent less at depreciated exchange rate rather than the official one. Producer and consumer gains, under both exchange rates, prevail over budget losses, therefore an overall gain will be ensured. The value of agricultural production in scenario, ceteris paribus, almost two times less at official exchange rate (14 percent) than under the depreciated one (27 percent). Furthermore, the deterioration balance of trade is smaller at depreciated exchange rate, thus, the MLC is met.