The Economic Benefits of Peace in the South Caucasus

Key points

• The normalisation of Armenian-Azerbaijani relations would have a highly positive impact on these countries’ economies by reducing military expenditure; attracting foreign investment; and ensuring other positive consequences for public finances, foreign trade, energy and transport.
• Thanks to the ongoing tensions, defence spending continues to be proportionally higher than in much of the world.
• Similarly, foreign direct investment has been adversely affected, particularly in Armenia. Normalisation would encourage the diversification of the various economic sectors and attract a greater variety of investors.
• Generally, ending conflicts can decrease interest rates by at least 1.5-2 percentage points across various sectors of a country’s financial markets.
• The reopening of borders and the establishment of transportation corridors could have far-reaching implications for trade and connectivity in the region, leading to shorter and cheaper trade and transport routes that benefit both countries and the region as a whole.