IDEAS home Printed from https://ideas.repec.org/p/han/dpaper/dp-681.html
   My bibliography  Save this paper

Consequences of FTA Withdrawal: Evidence from 'Uxit'

Author

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

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

  • Gnutzmann, Hinnerk & Gnutzmann-Mkrtchyan, Arevik & Korn, Tobias, 2021. "Consequences of FTA Withdrawal: Evidence from 'Uxit'," Hannover Economic Papers (HEP) dp-681, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-681
    as

    Download full text from publisher

    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-681.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anderson, James E. & Yotov, Yoto V., 2016. "Terms of trade and global efficiency effects of free trade agreements, 1990–2002," Journal of International Economics, Elsevier, vol. 99(C), pages 279-298.
    2. Christopher Adam & David Cobham, 2007. "Exchange Rate Regimes And Trade," Manchester School, University of Manchester, vol. 75(s1), pages 44-63, September.
    3. Harald Oberhofer & Michael Pfaffermayr, 2021. "Estimating the trade and welfare effects of Brexit: A panel data structural gravity model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 338-375, February.
    4. Scott L. Baier & Jeffrey H. Bergstrand & John P. Bruno, 2019. "Putting Canada in the penalty box: trade and welfare effects of eliminating NAFTA," CESifo Working Paper Series 7678, CESifo.
    5. Pain, Nigel & Young, Garry, 2004. "The macroeconomic impact of UK withdrawal from the EU," Economic Modelling, Elsevier, vol. 21(3), pages 387-408, May.
    6. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 541-585.
    7. Head, Keith & Mayer, Thierry & Ries, John, 2010. "The erosion of colonial trade linkages after independence," Journal of International Economics, Elsevier, vol. 81(1), pages 1-14, May.
    8. Giuseppe Berlingieri & Holger Breinlich & Swati Dhingra, 2018. "The Impact of Trade Agreements on Consumer Welfare—Evidence from the EU Common External Trade Policy," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1881-1928.
    9. repec:hal:spmain:info:hdl:2441/6o8sdn6fuv9m1r3rt5verlv4b7 is not listed on IDEAS
    10. Moser, Christoph & Rose, Andrew K., 2014. "Who benefits from regional trade agreements? The view from the stock market," European Economic Review, Elsevier, vol. 68(C), pages 31-47.
    11. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    12. Scott L. Baier & Jeffrey H. Bergstrand & John P. Bruno, 2019. "Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement," The World Economy, Wiley Blackwell, vol. 42(12), pages 3488-3514, December.
    13. Thierry Mayer & Vincent Vicard & Soledad Zignago & Beata Javorcik, 2019. "The cost of non-Europe, revisited," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 34(98), pages 145-199.
    14. Santos Silva, J.M.C. & Tenreyro, Silvana, 2011. "Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator," Economics Letters, Elsevier, vol. 112(2), pages 220-222, August.
    15. World Bank, 2014. "Evaluation of the EU-Turkey Customs Union," World Bank Publications - Reports 20444, The World Bank Group.
    16. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    17. Gabriel Felbermayr & Jasmin Katrin Gröschl & Inga Heiland, 2018. "Undoing Europe in a New Quantitative Trade Model," ifo Working Paper Series 250, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    18. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    19. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    20. Pablo D Fajgelbaum & Pinelopi K Goldberg & Patrick J Kennedy & Amit K Khandelwal, 2020. "The Return to Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 1-55.
    21. Gabriel Felbermayr & Jasmin Gröschl & Marina Steininger, 2022. "Quantifying Brexit: from ex post to ex ante using structural gravity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(2), pages 401-465, May.
    22. Dani Rodrik, 2018. "What Do Trade Agreements Really Do?," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 73-90, Spring.
    23. Theo S. Eicher & Christian Henn & Chris Papageorgiou, 2012. "Trade creation and diversion revisited: Accounting for model uncertainty and natural trading partner effects," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(2), pages 296-321, March.
    24. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(92), pages 651-705.
    25. Magnus Feldmann & Razeen Sally, 2002. "From the Soviet Union to the European Union: Estonian Trade Policy, 1991–2000," The World Economy, Wiley Blackwell, vol. 25(1), pages 79-106, January.
    26. Baier, Scott L. & Bergstrand, Jeffrey H. & Feng, Michael, 2014. "Economic integration agreements and the margins of international trade," Journal of International Economics, Elsevier, vol. 93(2), pages 339-350.
    27. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    28. Christopher Adam & David Cobham, 2007. "Modelling multilateral trade resistance in a gravity model with exchange rate regimes," CDMA Conference Paper Series 0702, Centre for Dynamic Macroeconomic Analysis.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan & Tobias Korn, 2021. "Consequences of FTA Withdrawal: Evidence from "Uxit"," CESifo Working Paper Series 8859, CESifo.
    2. Swati Dhingra & Rebecca Freeman & Hanwei Huang, 2023. "The Impact of Non‐tariff Barriers on Trade and Welfare," Economica, London School of Economics and Political Science, vol. 90(357), pages 140-177, January.
    3. Silviano Esteve-Pérez & Salvador Gil-Pareja & Rafael Llorca-Vivero, 2020. "Does the GATT/WTO promote trade? After all, Rose was right," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(2), pages 377-405, May.
    4. Milena Kern & Jörg Paetzold & Hannes Winner, 2021. "Cutting red tape for trade in services," The World Economy, Wiley Blackwell, vol. 44(10), pages 2858-2886, October.
    5. Heid, Benedikt & Stähler, Frank, 2024. "Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market," Economic Modelling, Elsevier, vol. 131(C).
    6. Duc Bao Nguyen & Anne‐Gaël Vaubourg, 2021. "Financial intermediation, trade agreements and international trade," The World Economy, Wiley Blackwell, vol. 44(3), pages 788-817, March.
    7. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    8. Steven Buigut & Burcu Kapar, 2023. "How did Brexit impact EU trade? Evidence from real data," The World Economy, Wiley Blackwell, vol. 46(6), pages 1566-1581, June.
    9. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    10. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    11. Yang, Yichen & Liu, Wen, 2024. "Free trade agreements and domestic value added in exports: An analysis from the network perspective," Economic Modelling, Elsevier, vol. 132(C).
    12. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2015. "Can Trade Agreements Curtail Trade Creation and Prevent Trade Diversion?," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 221-238, May.
    13. Natalie Chen & Dennis Novy, 2022. "Gravity and Heterogeneous Trade Cost Elasticities," The Economic Journal, Royal Economic Society, vol. 132(644), pages 1349-1377.
    14. Kenta Yamanouchi, 2019. "Heterogeneous Impacts of Free Trade Agreements: The Case of Japan," Asian Economic Papers, MIT Press, vol. 18(2), pages 1-20, Summer.
    15. Heid, Benedikt & Larch, Mario, 2016. "Gravity with unemployment," Journal of International Economics, Elsevier, vol. 101(C), pages 70-85.
    16. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    17. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    18. Peiró-Palomino, Jesús & Rodríguez-Crespo, Ernesto & Suárez-Varela, Marta, 2022. "Do countries with higher institutional quality transition to cleaner trade?," Ecological Economics, Elsevier, vol. 201(C).
    19. Elisaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Documents de Travail de l'OFCE 2012-17, Observatoire Francais des Conjonctures Economiques (OFCE).
    20. Rindler, Michael, 2021. "Changing Language Skills and Trade in Europe," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242449, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

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

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:han:dpaper:dp-681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Heidrich, Christian (email available below). General contact details of provider: https://edirc.repec.org/data/fwhande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.