Uzbekistan Quality Job Creation as a Cornerstone for Sustainable Economic Growth

Trade and Foreign Direct Investment in Uzbekistan
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Trade liberalization can boost economic growth, especially in an emerging 
economy such as Uzbekistan’s. Trade facilitates productivity improvements 
and more efficient allocation of resources, and hence boosts economic output. 
For example, Pavcnik (2002) found evidence that aggregate productivity in 
Chile increased due to its trade liberalization, and Amiti and Konings (2007) 
show that accession to the WTO and a subsequent reduction of input tariffs 
significantly contributed to productivity gains in Indonesian manufacturing 
during the late 1990s. 
However, liberalized trade may not necessarily foster aggregate growth if there 
exist cumbersome business and labor regulations or excessive government 
support for enterprises (Rodrik 1988, Bolaky and Freund 2004). For example, 
reductions in trade protectionism in India led to higher productivity growth 
in private firms but productivity in public sector firms remained unchanged 
(Topalova 2004). While state-owned firms enjoy soft budget constraints, 
they tend to retain excessive labor, which depresses their productivity and 
prevents efficient reallocation of resources (De Loecker and Konings 2003). 
Furthermore, Donaldson (2018) concluded that improved railroads decreased 
trade costs and increased trade and real incomes in India. That is, other trade 
facilitation mechanisms also are important, including transport and logistics 
infrastructure (Nordas et al. 2006, Hong et al. 2011); indirect transport costs 
(Hausman et al. 2013); and nontariff measures (Kee et al. 2009). 
The role of FDI to facilitate growth through human resource development 
and technology transfer also has been discussed extensively in the literature. 
One reason to attract FDI is to create new jobs in the economy. FDI not only 
opens up opportunities, but also tends to result in higher wages in developing 
countries as foreign employers offer more on-the-job training than do domestic 
employers (Javorcik 2012). Hence, FDI boosts aggregate productivity in the 
host country. However, the amount and type of FDI received depend on a 
number of factors, such as absorptive capacities within the recipient country, 
institutional and political regulations, trade openness, and scale factors (de 
Mello 1999).
This chapter analyzes the scope for economic activities to enhance the role 
of trade and FDI in Uzbekistan. The chapter starts by discussing Uzbekistan’s 
institutional background in economic and trade cooperation. Section 5.2 
draws out stylized facts from export, import, and FDI data. Section 5.3 
discusses why Uzbekistan needs to further liberalize its trade and FDI, and 
section 5.4 reviews how international trade and FDI can promote economic 
growth. The chapter then takes a “granular” approach to analyzing firm size 

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