Ukraine's Unconsidered Losses from the Annexation of Crimea: What Should We Account for in the DCFTA Forecasts?

25 Pages Posted: 25 Apr 2019

See all articles by Zoryana Olekseyuk

Zoryana Olekseyuk

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Hannah Schürenberg‐Frosch

University of Duisburg-Essen - International Economics

Date Written: May 2019

Abstract

In March 2014 Crimea unilaterally declared its independence from Ukraine and joined the Russian Federation. The separation of a part of a state's territory and economy is an interesting matter to examine. The economy of Ukraine has not only shrunk, but also changed its structure as Crimea had a quite distinct production pattern compared to the rest of Ukraine. Moreover, policy measures initialized before the separation may have different effects once applied only to a part of the former economy. This paper proposes a strategy to model the separation of part of an economy and its inclusion into another country and applies this strategy to the case of Crimea, Ukraine, and Russia. Having constructed a model for the new geographical and economic situation, we reinvestigate the possible effects of a Deep and Comprehensive Free Trade Agreement between Ukraine and the EU and compare the results for the situation with Crimea as part of Ukraine. We find that the annexation of Crimea leads to severe economic losses for Ukraine which are partly overproportional compared to Crimea's economic size. These negative effects can be compensated by implementing the DCFTA with the EU as we also show in our model results.

Keywords: territorial changes, free trade agreement, CGE, Melitz, DCFTA, EU, Russia

Suggested Citation

Olekseyuk, Zoryana and Schürenberg‐Frosch, Hannah, Ukraine's Unconsidered Losses from the Annexation of Crimea: What Should We Account for in the DCFTA Forecasts? (May 2019). Review of Development Economics, Vol. 23, Issue 2, pp. 877-901, 2019, Available at SSRN: https://ssrn.com/abstract=3376857 or http://dx.doi.org/10.1111/rode.12574

Zoryana Olekseyuk (Contact Author)

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

Tulpenfeld 4
Bonn, 53113
Germany

Hannah Schürenberg‐Frosch

University of Duisburg-Essen - International Economics ( email )

Universitätsstr. 12
Essen, D-45117
Germany

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