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

Author

Listed:
  • Alexander Knobel

    (The Russian Presidential Academy of National Economy and Public Administration (RANEPA), Russian Federation)

  • Andrey Lipin

    (Bank of Russia, Russian Federation)

  • Andrey Malokostov

    (Centre for Economic and Financial Research (CEFIR), Russian Federation)

  • David G. Tarr

    (Former Lead Economist, The World Bank)

  • Natalia Turdyeva

    (Bank of Russia, Russian Federation)

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. Among the various reforms under consideration, we identify which reform is most important for each EAEU member country; and we identify whether the European Union, China or the United States is the most important external region for each member country if the reforms are extended to third countries.

Suggested Citation

  • Alexander Knobel & Andrey Lipin & Andrey Malokostov & David G. Tarr & Natalia Turdyeva, 2019. "Deep Integration in the Eurasian Economic Union: What are the Benefits of Successful Implementation or Wider Liberalization?," Bank of Russia Working Paper Series wps41, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:wps41
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    File URL: http://cbr.ru/Content/Document/File/107528/wp_41e.pdf
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    Citations

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    Cited by:

    1. Vera Kot & Arina Barsukova & Wadim Strielkowski & Mikhail Krivko & Luboš Smutka, 2022. "International Trade in the Post-Soviet Space: Trends, Threats, and Prospects for the Internal Trade within the Eurasian Economic Union," JRFM, MDPI, vol. 16(1), pages 1-19, December.
    2. Khamdan Rifa'i, 2023. "The Economic Impact of the US Unconventional Monetary Policy, Global Commodity Shocks, and Oil Price Shocks on ASEAN 3," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 616-624, September.
    3. Veronika Movchan & Thomas F. Rutherford & David G. Tarr & Hidemichi Yonezawa, 2023. "The importance of deep integration in preferential trade agreements: the case of a successfully implemented Ukraine–Turkey free trade agreement," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 159(1), pages 1-50, February.

    More about this item

    Keywords

    Eurasian Economic Union; deep integration; foreign direct investment; services liberalization; preferential trade agreements; endogenous productivity effects.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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