The Impact of Free Trade Agreements on Uzbekistan's Textile Industry

Abstract

This study examines the impact of Free Trade Agreements (FTAs) and partner-country macroeconomic conditions on the performance of Uzbekistan's textile industry between 2017 and 2022. Using a balanced panel dataset of 72 observations covering six major trading partners — China, Russia,  Kazakhstan, the Kyrgyz Republic, Tajikistan, and Turkmenistan — the study applies Fixed Effects (FE)  and Random Effects (RE) panel regression models, with the Hausman test used to select the preferred  specification. Trade data were obtained from the UN Comtrade database (HS codes 50–63),  macroeconomic indicators from the World Bank's World Development Indicators, and FTA status was coded as a dummy variable based on the CIS Free Trade Area Agreement (2012) and the Uzbekistan– China Economic and Trade Cooperation Framework (2018). The Fixed Effects results show that FTAs  have a positive and statistically significant effect on both textile exports (β = 0.213, p < 0.05) and imports (β = 0.178, p < 0.10), corresponding to roughly a 21 percent increase in exports during FTA- active years. Partner-country GDP growth is positively associated with trade performance, while inflation exerts a significant negative effect; exchange-rate movements are statistically insignificant.  The models explain a substantial share of the variation in trade flows (R² = 0.73 for exports; 0.68 for imports). The findings support Comparative Advantage, Gravity, and New Trade Theory predictions and suggest that Uzbekistan's trade liberalization strategy has contributed to export growth and  industrial upgrading. Policy recommendations include expanding the FTA network, strengthening  macroeconomic stability among partner countries, and investing in customs and logistics infrastructure  to sustain the gains from trade liberalization.