Consequences of FTA Withdrawal: Evidence from "Uxit"

51 Pages Posted: 28 Jan 2021

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

Tobias Korn

Leibniz Universität Hannover

Date Written: 2021

Abstract

We use a unique case study to estimate the effect of withdrawing from a free trade agreement on international trade. Lately, the political opposition to international economic cooperation has been on the rise, but little is known about how the withdrawal from a trade agreement affects trade. We analyze a quasi-natural experiment to provide first empirical evidence. In 2004, Estonia joined the European Union, which mandated that it withdraws from its FTA with Ukraine (“Uxit”). Based on the gravity model of international trade, we provide evidence from triple difference–in– differences as well as PPML panel estimations that trade volumes between Estonia and Ukraine fell by more than 20%. We find that withdrawing an FTA revokes all benefits and that no institutional memory is left behind. General equilibrium estimates suggest that FTA withdrawal led to a noticeable loss in welfare of members.

JEL Classification: F130, F140, F150, F170

Suggested Citation

Gnutzmann, Hinnerk and Gnutzmann-Mkrtchyan, Arevik and Gnutzmann-Mkrtchyan, Arevik and Korn, Tobias, Consequences of FTA Withdrawal: Evidence from "Uxit" (2021). Available at SSRN: https://ssrn.com/abstract=3774666 or http://dx.doi.org/10.2139/ssrn.3774666

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

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

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy

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

Koenigsworther Platz 1
Hannover, 30167
Germany

Tobias Korn

Leibniz Universität Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

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