The Cost of Borders: Evidence from the Eurasian Customs Union

Hinnerk Gnutzmann and Arevik Gnutzmann-Mkrtchyan

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: How strongly can the reduction in bureaucracy and red tape at the border increase trade? To address this, we study an ambitious trade facilitation policy - the complete abolition of internal customs controls - in the Eurasian Customs Union. Using a structural gravity model with high-dimensional fixed effects, we find evidence that non-tariff trade facilitation strongly and robustly increases the number of newly traded products. The value of trade, however, reacts more strongly to a traditional tariff-driven diversion of trade towards union members. Trade facilitation policies can diversify bilateral trade, highlighting the importance of trade analysis at the extensive margin.

Keywords: trade facilitation; non-tariff trade costs; customs union; border effects; structural gravity (search for similar items in EconPapers)
JEL-codes: F14 F15 F55 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2020-01
New Economics Papers: this item is included in nep-int
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