Ekonomske teme (2015) DIVERSIFICATION OF SERBIAN EXPORT MARKETS - Potentials for Export to the Countries of Caspian Basin Nataša Stanojević, Ana Jovancai Abstract: Key features of the current foreign trade of Serbia are high and growing foreign trade deficit, and a small number of export partners. The fact that Serbia places its almost entire export on the markets of Italy, Germany and three former Yugoslavian countries implies the need for export diversification. Finding new or revitalizing former markets is vital for overcoming various weaknesses of Serbian foreign trade. Gravity model was used for establishing determinants of Serbian export and potential export directions. Coefficients of Serbian export, determined in a few earlier studies are based on the figures that were valid before the global economic crisis. As the export to the EU countries which are geographically closest to Serbia decreased during the crisis, it is assumed that the parameters have now changed and the factor of importance of geographical distance decreased. The obtained coefficients are then applied to the countries of Caspian Basin. This is the region which, due to its numerous geographical and economic characteristics, is seen as an adequate export market, although its distance is relatively large. Research based on applying of gravity model has found that in some countries of the region there is plenty of „space“ for Serbian exports. JEL: C 53, F 14, F 17, F 47 Key words: Serbian export, gravity model, geographical distance, Caspian Basin. Introduction The economy of former Socialist Federative Republic of Yugoslavia was characterized by very diverse trade relations with the countries of various economic and political orientations, situated in different regions of Europe, Asia, Africa and Latin America. The most important trade partners were USSR, Italy and Germany, Saudi Arabia, France, and the countries from the region like Poland, Czechoslovakia, etc. The breakup of Yugoslavia and transition process initiated by former republics, led to restructuring of their economies, changes in economic relations, resulting in major changes in the structure, volume and directions of foreign trade. In the first decade after the breakup of Yugoslavia, the volume, quality and diversity of production and export decreased dramatically. The overthrow of left-wing regime in 2000 and takeover of rule by pro- democratic and pro-European opposition meant abolition of sanctions, which provided a certain degree of revitalization of foreign trade. On the other hand, new government politics has, paradoxically, led to a massive drop in the number of export markets. Providing an explanation that the new course of Serbian foreign policy (at that time it was in the state union with Montenegro), means ‘shifting’ towards the West, 13 embassies in Asia, Africa, Europe and Latin America were closed in 2001. For instance, the embassy in Lebanon was closed, although it was the country where a large number of Serbian companies operated, which resulted in the volume of export being 20 times lower the next year. At the beginning of the 21 st century, Serbia is among the least technologically competitive economies in Europe, due to the whole century of disinvestments, and the volume of production and product range drastically dropped. The main characteristics of Serbian foreign economic relations are enormous growth of foreign debt, high foreign trade deficit, which keeps increasing, and a small number of export partners.