Economic prospects for Kaliningrad: Between EU enlargement and Russia’s integration into the world economy

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Article abstract:

The Kaliningrad oblast of Russia is currently an important focal point of discussions between the European Union and Russia. Although small in terms of geography and population, Kaliningrad has grown in importance due to the EU enlargement process. Since the break-up of the Soviet Union, the oblast has become an exclave of Russia, and it is now set to also become an enclave within the EU. This paper examines the state of Kaliningrad's economy and trade. The economic crisis that took place in Russia in the 1990s had severe consequences for Kaliningrad, as old patterns of production and trade were disrupted. Since 1999, however, the regional economy has grown with impressive speed. Kaliningrad's Special Economic Zone (SEZ) status has played a crucial role in determining its new patterns of production and trade specialisation. The paper argues that the SEZ regime has made the region's economic growth faster but also vulnerable.

The paper also looks at the potential impact of EU enlargement and Russia's WTO accession. Here, Kaliningrad may be vulnerable to twin shocks. However, the impact is likely to be mixed, representing dangers to Kaliningrad in the short-run but providing it with new opportunities for economic development in the medium- and long-term. Various scenarios are reviewed that include factors such as the existence/abolition of the SEZ regime, Russia's WTO accession and an EU-Russian common economic space. The paper concludes with an argument for an increased appreciation of Kaliningrad's position by both Russia and the EU and for a careful approach to drafting a new SEZ regime that provides for a long transition period.