Deep Integration in the Eurasian Economic Union: What are the Benefits of Successful Implementation or Wider Liberalization?

Alexander Knobel, Andrey Lipin (), Andrey Malokostov (), David Tarr and Natalia Turdyeva
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Andrey Lipin: Bank of Russia, Russian Federation
Andrey Malokostov: Centre for Economic and Financial Research (CEFIR), Russian Federation

No wps41, Bank of Russia Working Paper Series from Bank of Russia

Abstract: We assess deep integration in the Eurasian Economic Union (EAEU) through the reduction of time in trade costs, the reduction of non-tariff barriers in goods and the liberalization of barriers against foreign suppliers of services. We develop an innovative multi-region model of trade and FDI for preferential trade analysis where we incorporate Dixit-Stiglitz endogenous productivity effects from trade and FDI liberalization. This model produces important differences compared with a perfect competition model. We build on numerous surveys and econometric estimates of the trade and FDI barriers in our focus countries that we helped develop. We show that if the EAEU effectively implements its objectives for trade cost reduction, it would lead to significant welfare gains of between 0.8 to 4.8 percent of consumption, depending on the country. If these deep integration measures are extended to third countries, either by a wider liberalization effort or by spillovers, then the estimated welfare gains increase between 2.5 and 4.5 times for Belarus, Kazakhstan and the Russian Federation. Using the neoclassical model of labor migration, we estimate that the right to legally work in the Russian Federation is approximately of equal value to Armenia as the combined aspects of the reduction of trade costs, including FDI liberalization. Our estimates show that all the spillovers are beneficial to all the EAEU countries. Among the various reforms under consideration, we identify which reform is most important for each EAEU member country; and we identify whether the European Union, China or the United States is the most important external region for each member country if the reforms are extended to third countries.

Keywords: Eurasian Economic Union; deep integration; foreign direct investment; services liberalization; preferential trade agreements; endogenous productivity effects. (search for similar items in EconPapers)
JEL-codes: C63 C68 F12 F14 F15 F17 F55 O52 O53 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2019-06
New Economics Papers: this item is included in nep-cis, nep-int and nep-tra
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Citations: View citations in EconPapers (3)

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