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Reversal of Economic Integration: Evidence from EU Enlargement

Author

Listed:
  • Hinnerk Gnutzmann

    (Leibniz Universität Hannover)

  • Arevik Gnutzmann-Mkrtchyan

    (Leibniz Universität Hannover & CESifo)

  • Tobias Korn

    (Leibniz Universität Hannover & Heidelberg University)

Abstract

Empirical models of trade agreements implicitly assume that withdrawal from a trade agreement has an equal and opposite trade effect as accession, i.e., symmetry. With increasing opposition to international economic cooperation, it becomes urgent to test this assumption. We analyze a quasi- natural experiment to explicitly test the symmetry assumption in the context of FTA termination using the gravity model. In 2004, Estonia joined the European Union, which mandated that it withdraws from its FTA with Ukraine. Carefully controlling for possible confounding effects of EU enlargement using a variety of methods, we isolate the FTA withdrawal effect and find strong support in favour of symmetry. Moreover, while import tariffs are part of the impact, the bulk of the effect comes from non-tariff effects of an FTA. General equilibrium estimates suggest that the FTA withdrawal led to a noticeable loss in members’ welfare.

Suggested Citation

  • Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan & Tobias Korn, 2025. "Reversal of Economic Integration: Evidence from EU Enlargement," Working Papers 407, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    • Handle: RePEc:ost:wpaper:407
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    More about this item

    Keywords

    Free trade agreement; withdrawal; gravity; welfare analysis; 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
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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