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Consequences of FTA Withdrawal: Evidence from "Uxit"

Author

Listed:
  • Hinnerk Gnutzmann
  • Arevik Gnutzmann-Mkrtchyan
  • Tobias Korn

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

  • Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan & Tobias Korn, 2021. "Consequences of FTA Withdrawal: Evidence from "Uxit"," CESifo Working Paper Series 8859, CESifo.
    • Handle: RePEc:ces:ceswps:_8859
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • 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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