Template-Type: ReDIF-Paper 1.0
Author-Name: Alexander Knobel
Author-Email: knobel@iep.ru
Author-Workplace-Name: The Russian Presidential Academy of National Economy and Public Administration (RANEPA), Russian Federation

Author-Name: Andrey Lipin
Author-Email: LipinAS@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Andrey Malokostov
Author-Email: andrei.malokostov@gmail.com
Author-Workplace-Name: Centre for Economic and Financial Research (CEFIR), Russian Federation

Author-Name: David G. Tarr
Author-Email: dgtarr@gmail.com
Author-Workplace-Name: Former Lead Economist, The World Bank

Author-Name: Natalia Turdyeva
Author-Email: TurdyevaNA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Title: 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.

Length: 72 pages
Creation-Date: 2019-06
Revision-Date:
Publication-Status:
File-URL: http://cbr.ru/Content/Document/File/107528/wp_41e.pdf
File-Format: Application/pdf
File-Function:
Number:wps41
Classification-JEL: F12; F14; F15; F17; F55; O52; O53; C63; C68.
Keywords: Eurasian Economic Union; deep integration; foreign direct investment; services liberalization; preferential trade agreements; endogenous productivity effects.
Handle:RePEc:bkr:wpaper:wps41