Is Eurasian Customs Union Trade Creating? Gravity Model Analysis

Abstract

The paper presents a thorough analysis of the consequences of economic integration for the countries of the Eurasian Customs Union. The main objective of the paper is to evaluate the economic efficiency of the Union by measuring its trade creation and trade diversion effects. To empirically estimate the effects of ECU the gravity model was applied to the data sample of 51 countries over the period of 2003-2018 years. The analysis of trade creation and trade diversion effects of ECU as a whole showed that Union had been efficient in promoting internal trade and increasing the net export of its members to non-union countries, which is certainly beneficial for the economies of nations. Despite the presence of the import trade diversion, the scope of intrabloc trade creation effect is larger, so that the Union can be considered as a net trade creator. Having examined the consequences of the membership in ECU for each country we can state that while there are positive effects for some members, the advantages for Russia outweigh those for other countries.