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

70 Pages Posted: 3 Jan 2020

See all articles by Alexander Knobel

Alexander Knobel

Gaidar Institute for Economic Policy; Russian Presidential Academy and Public Administration (RANEPA) - Institute of Applied Economic Studies

Andrey Lipin

Central Bank of Russia

Andrey Malokostov

CEFIR

David G. Tarr

International Trade Analysis

Natalia Turdyeva

Bank of Russia

Date Written: November 14, 2018

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. But, we identify the different reforms and the different external region that are most important for each member country regarding spillovers, which may inform lobbying positions of the member governments.

Keywords: Eurasian Economic Union, deep integration, foreign direct investment, services liberalization, preferential trade agreements, endogenous productivity effects,

JEL Classification: F12, F14, F15, F17, F55, O52, O53, C63, C68

Suggested Citation

Knobel, Alexander and Lipin, Andrey and Malokostov, Andrey and Tarr, David G. and Turdyeva, Natalia, Deep Integration in the Eurasian Economic Union: What are the Benefits of Successful Implementation or Wider Liberalization? (November 14, 2018). Available at SSRN: https://ssrn.com/abstract=3284764 or http://dx.doi.org/10.2139/ssrn.3284764

Alexander Knobel

Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009
Russia

Russian Presidential Academy and Public Administration (RANEPA) - Institute of Applied Economic Studies ( email )

Vernadsky Ave. 82
Moscow, 119571
Russia

Andrey Lipin

Central Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016
Russia

Andrey Malokostov

CEFIR ( email )

47 Nakhimovsky Prospect, Office #720
117418 Moscow
Russia

David G. Tarr (Contact Author)

International Trade Analysis ( email )

7901 Hispanola Avenue
Apt. 1102
North Bay Village, FL 33141
United States
5712242796 (Phone)

HOME PAGE: http://https://sites.google.com/site/davidgtarr/

Natalia Turdyeva

Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016
Russia

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