The Cost of Borders: Evidence from the Eurasian Customs Union

Posted: 22 Aug 2017

See all articles by Hinnerk Gnutzmann

Hinnerk Gnutzmann

Leibniz Universität Hannover - Faculty of Economics and Management

Arevik Gnutzmann-Mkrtchyan

European University Institute - Economics Department (ECO); Leibniz Universität Hannover - Faculty of Economics and Management

Date Written: August 18, 2017

Abstract

How strongly can trade facilitation benefit trade? We study the most comprehensive trade facilitation measure possible – complete elimination of customs points – within the Eurasian Customs Union EACU). The EACU abolished internal customs controls between its members in two stages, which makes it possible to identify the effect of border elimination. We find that most of the trade impact is driven by the non-tariff costs rather than changes in MFN tariffs. Removal of the internal customs controls increased the intra-CU by 65% and hurt trade with the MFN partners to a similar extent. While the trade gain for the members is largely driven by the final goods trade and at the expense of the MFN partners, the intermediates trade is affected much less. This finding suggests that international fragmentation of production limits the scope for trade diversion from regional trade agreements.

Keywords: customs union, non-tariff trade costs, border effects, Russia, Belarus, Kazakhstan

JEL Classification: F14, F15, F55

Suggested Citation

Gnutzmann, Hinnerk and Gnutzmann-Mkrtchyan, Arevik and Gnutzmann-Mkrtchyan, Arevik, The Cost of Borders: Evidence from the Eurasian Customs Union (August 18, 2017). Available at SSRN: https://ssrn.com/abstract=3021779

Hinnerk Gnutzmann (Contact Author)

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

HOME PAGE: http://www.gnutzmann.info

Arevik Gnutzmann-Mkrtchyan

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

European University Institute - Economics Department (ECO) ( email )

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy

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