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Consequences of FTA Withdrawal: Evidence from 'Uxit'

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  • Gnutzmann, Hinnerk
  • Gnutzmann-Mkrtchyan, Arevik
  • Korn, Tobias

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.

Suggested Citation

  • Gnutzmann, Hinnerk & Gnutzmann-Mkrtchyan, Arevik & Korn, Tobias, 2021. "Consequences of FTA Withdrawal: Evidence from 'Uxit'," Hannover Economic Papers (HEP) dp-681, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-681
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    More about this item

    Keywords

    free trade agreement; withdrawal; gravity; European Union; Estonia; Ukraine;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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