Assessing the Extent of EU-Russia Trade Integration in the Presence of Global Value Chains

The present paper analyses trade linkages between EU Member States and Russia taking into account the indirect trade links through global value chains based on data for 2011 from the World Input-Output Database combined with gross flows between Russia and individual EU countries. We base our conclusions on three indicators: gross exports in final use, value added in final use and value added in output. The latter two novel indicators are able to capture direct and indirect links jointly by allocating the full amount of Russia's value added in the EU's final domestic use and output (and vice versa: the EU's value added in Russia's final domestic use and output). In terms of direct export shares, Russia represents the EU's fourth largest trade partner, while the EU is Russia's largest trade partner. The Russian economy is also considerably more dependent on European value added in terms of both final use and producing output than vice versa. However, the degree of integration varies greatly across the EU Member States. For example, the Baltic States are notably more dependent on Russia's value added than vice versa. Moreover, certain economic sectors in the EU are strongly dependent on Russian inputs, such as the energy sector, utilities and air transport.