Impact of Regional integration on Trade and Economic Cooperation – a key study of Georgia and Azerbaijan

Abstract

The South Caucasus is a unique small and densely populated region in the southern part of the Caucasus. It consists of three independent states - Georgia, Azerbaijan and Armenia. Georgia is actively engaged in the Peaceful Neighborhood Initiative in the South Caucasus and strives to deepen political and economic relations with the countries in the region based on sovereign interests. In these processes, strengthening mutually beneficial, trust-based cooperation with the Republic of Azerbaijan is of special interest to Georgia. After the collapse of the Union of Soviet Socialist Republics (USSR) and the regaining of independence by Georgia and Azerbaijan, a completely new phase of diplomatic relations began between the two countries which grew into a strategic partnership. Territorial proximity and the establishment of diplomatic relations have prompted the dynamic development of trade and economic relations between the two countries, which increases the degree of urgency of the study. The presented paper focuses on the priority areas of trade and economic cooperation between Georgia and Azerbaijan. However, at the present stage economics and politics are so closely interrelated that it is impossible to draw a line between them. Therefore, in order to achieve the purpose of the paper, the first chapter focuses on the development of diplomatic relations between the two countries, while the following chapters study trade and economic cooperation between Georgia and Azerbaijan and analyze the development of bilateral cooperation in trade in services; in addition, the trade intensity index is calculated; the importance of investments from Azerbaijan in the Georgian economy is assessed; the transnational energy and transport projects proposed by the Georgian and Azerbaijani governments are discussed; and the growing role of Georgia as trade and transport hub in the Caucasus in both the offshore and onshore components of these projects is assessed. It is noted that trade and economic relations have growing dynamics and show readiness to further develop cooperation. In addition, some suggestions that will be helpful for Georgia to increase the scale of cooperation with Azerbaijan and assist deepening the involvement of the two countries in the world integration processes are proposed. We believe that the paper will enhance further research and discussion on trade and economic cooperation between Georgia and Azerbaijan and, most importantly, ensure support for this kind of cooperation.