ESTIMATING TRADE CREATION, TRADE DIVERSION, AND TRADE BALANCE EFFECTS OF THE EURASIAN ECONOMIC UNION WITH A PARTIAL AND GENERAL EQUILIBRIUM GRAVITY MODEL
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Date
2023
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Nazarbayev University Graduate School of Public Policy
Abstract
This study evaluates the impact of the Eurasian Economic Union by estimating trade creation, trade diversion, and trade balance effects with the gravity model in partial and general equilibrium frameworks. In addition to aggregated goods, partial equilibrium trade effects are estimated with trade flows disaggregated into consumer, capital, and intermediate goods. The results suggest that the EEU has a strong positive trade creation effect driven by increased intra-region trade in consumer goods. In a general equilibrium framework, all the EEU members have experienced a positive impact on their exports and GDP. The general equilibrium effects for non-members are mixed. However, they suggest that the most negatively affected non-members are the post-Soviet Central Asian countries. In a trade balance framework, trade creation, trade diversion, and trade balance effects, estimated in a partial equilibrium framework for each EEU member, support the hypothesis that smaller and diversified countries gain more from regional integration than their larger and less diversified trading partners. The trade balances of Armenia, Belarus, and the Kyrgyz Republic have improved in consumer goods and deteriorated in capital goods, implying a positive economic effect. The EEU impact on trade is positive but less significant for resource-rich Kazakhstan and Russia, the largest EEU member. The findings show the consistency between the partial and general equilibrium effects of the EEU and suggest that the trade balance effects could be a useful macroeconomic framework to evaluate the impact of economic integration in the gravity model of trade.
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Type of access: Embargo, gravity model of trade, partial equilibrium, general equilibrium, trade creation effect, trade balance effect
Citation
Umbetaliyev, M. (2023). Estimating Trade Creation, Trade Diversion, And Trade Balance Effects Of The Eurasian Economic Union With A Partial And General Equilibrium Gravity Model. Nazarbayev University Graduate School of Public Policy