Foreign Direct Investments in Central Asian Energy: A CGE Model

Turkmenistan, Uzbekistan, and Kazakhstan have adopted significant legislative changes since the fall of the former Soviet Union in an effort to attract foreign direct investment into their energy sectors. Of the three republics, Kazakhstan has been the most successful in attracting foreign interest, but all three republics face significant challenges in further development of oil and gas infrastructure. Even if these countries are completely successful in bringing in foreign investment, a question will remain: who wins and who loses in these countries. Using updated data, this paper will use a computable general equilibrium model to measure the effects of FDI into Central Asia. Results of the model suggest that the region would be better off overall from foreign investment in its natural gas sector, due mostly to improvements in overall production efficiency and its overall terms of trade. However, the gain in the natural gas sector would come at the expense of production and net exports of non-petroleum related industries.