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Import Substitution Potential and Gains from Economic Integration: Disaggregated Estimations

Listed author(s):
  • Apokin, Alexander

    ()

    (Center for Macroeconomic Analysis and Short-Term Forecasting)

  • Gnidchenko, Andrey

    ()

    (Center for Macroeconomic Analysis and Short-Term Forecasting)

  • Sabelnikova, Ekaterina

    ()

    (Center for Macroeconomic Analysis and Short-Term Forecasting)

In the article, we focus on measuring gains from integration in the form of import substitution at the 4-digit HS2007 commodity level (1199 groups) and EBOPS services (11 groups). Integration studies based on CGE models and gravity equations usually provide the less accurate results the more detailed level of commodity disaggregation is used. We propose a new approach to estimate gains from integration in the form of import substitution, based on the “product space” concept developed by Hausmann and Klinger (2007) [The Structure of the Product Space and the Evolution of Comparative Advantage; CID Working Paper No. 146]. In our approach, the main driver of import substitution is the difference between actual and potential comparative advantages. Our method relies on international trade data to estimate the reduction in import value of those goods and services that are heavily imported by a country. We calculate the gains for the Eurasian Economic Union and show that machinery, chemicals and some services benefit much from integration in the form of import substitution. As a whole, integration seems to be a minor factor of the import substitution potential (only 5.5 percent of potential reduction in imports is associated with integration). However, integration is the major factor for some goods and services, such as telecommunication and transport services, transmission shafts and cranks, insecticides, fungicides and herbicides, motor vehicles for the transport of goods, orthopaedic appliances and hearing aids (for these products and services, the contribution of integration to import substitution potential exceeds 50 percent)

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Article provided by Russian Presidential Academy of National Economy and Public Administration in its journal Economic Policy.

Volume (Year): 2 (2017)
Issue (Month): (April)
Pages: 44-71

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Handle: RePEc:rnp:ecopol:ep1712
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