Reversal of Economic Integration: Evidence from EU Enlargement

Hinnerk Gnutzmann (), Arevik Gnutzmann-Mkrtchyan and Tobias Korn
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Hinnerk Gnutzmann: Leibniz Universität Hannover
Arevik Gnutzmann-Mkrtchyan: Leibniz Universität Hannover & CESifo
Tobias Korn: Leibniz Universität Hannover & Heidelberg University

No 407, Working Papers from Leibniz Institut für Ost- und Südosteuropaforschung (Leibniz Institute for East and Southeast European Studies)

Abstract: Abstract Empirical models of trade agreements implicitly assume that withdrawal from a trade agreement has an equal and opposite trade effect as accession, i.e., symmetry. With increasing opposition to international economic cooperation, it becomes urgent to test this assumption. We analyze a quasi- natural experiment to explicitly test the symmetry assumption in the context of FTA termination using the gravity model. In 2004, Estonia joined the European Union, which mandated that it withdraws from its FTA with Ukraine. Carefully controlling for possible confounding effects of EU enlargement using a variety of methods, we isolate the FTA withdrawal effect and find strong support in favour of symmetry. Moreover, while import tariffs are part of the impact, the bulk of the effect comes from non-tariff effects of an FTA. General equilibrium estimates suggest that the FTA withdrawal led to a noticeable loss in members’ welfare.

Keywords: Free trade agreement; withdrawal; gravity; welfare analysis; European Union; Estonia; Ukraine (search for similar items in EconPapers)
JEL-codes: F13 F14 F15 F17 J13 (search for similar items in EconPapers)
Pages: 34
Date: 2025-04
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