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The Cost of Borders: Evidence from the Eurasian Customs Union

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  • Gnutzmann, Hinnerk
  • Gnutzmann-Mkrtchyan, Arevik

Abstract

How strongly can the reduction in bureaucracy and red tape at the border increase trade? To address this, we study an ambitious trade facilitation policy - the complete abolition of internal customs controls - in the Eurasian Customs Union. Using a structural gravity model with high-dimensional fixed effects, we find evidence that non-tariff trade facilitation strongly and robustly increases the number of newly traded products. The value of trade, however, reacts more strongly to a traditional tariff-driven diversion of trade towards union members. Trade facilitation policies can diversify bilateral trade, highlighting the importance of trade analysis at the extensive margin.

Suggested Citation

  • Gnutzmann, Hinnerk & Gnutzmann-Mkrtchyan, Arevik, 2020. "The Cost of Borders: Evidence from the Eurasian Customs Union," Hannover Economic Papers (HEP) dp-664, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-664
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    More about this item

    Keywords

    trade facilitation; non-tariff trade costs; customs union; border effects; structural gravity;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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