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

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.assumption. We are the first to provide estimates of these trade costs impacts for the EAEU countries with and without spillovers to third countries. We also contribute to the literature by providing an estimate of the free movement of labor, where we employ the well-known neoclassical model of labor migration. Key ResultsOur results for our central (basic) scenario of EAEU integration shows significant gains ranging from 0.8 percent of consumption for the Russian Federation to 4.8 percent of consumption for Armenia. If the measures to reduce trade costs and liberalize barriers against FDI in services are extended to third countries, either by a wider liberalization effort or by unavoidable extension of benefits (called "spillovers"), then the estimated gains increase to between 3.6 and 7.2 percent of consumption, depending on the country. The importance of spillovers is especially true for FDI liberalization. The significantly larger gains from wider liberalization or spillovers reflects the fact that the five EAEU countries collectively have only 2.2 percent of world GDP in 2017. The estimated gains are significantly smaller with our perfect competition model, which shows the importance of incorporating the endogenous productivity gains from trade and FDI liberalization in services.Since remittance income is very impor...

Russia’s Approach to Official Development Assistance and Its Contribution to the SDGs

“…At the regional level, Russia's priorities are mostly associated with facilitating the integration processes among the CIS countries, with particular emphasis on the development of trade and economic cooperation (SDG 9) (Knobel et al 2019). With respect to other neighbouring countries, Russia is primarily keen on facilitating the elimination of potential points of tension and conflict and sources of drug trafficking, international terrorism, and organised crime, as well as preventing their occurrence (SDG 16) (MoFA RF 2014).…”

Deep integration in the Eurasian Economic Union: what are the benefits of successful implementation or wider liberalization?

“…30 They obtained data from interviews with National Statistical Committees and Ministries, commercial sources such as Bankscope and Axco, professional and industry associations and industry experts. In the case of air transport services, we made several updates and adjustments, which are explained in Knobel et al (2018).…”

“…Aggregate effects from our central scenario Our results for the percentage change in welfare, aggregate trade and factor earnings in Armenia, Belarus, Kazakhstan and the Russian Federation are presented in Table 3. For impacts on the percentage change in output of each sector by country see Knobel et al (2018). The top section of the table shows which reform is evaluated in each of the scenarios.…”

“…3. See Knobel et al (2018) for a review of the literature on numerical evaluation of preferential trade agreements that go beyond tariffs. 4.…”

Intra-industry Trade in the EAEU: Case of Machine Building

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