Empirica – Journal of European Economics

Sponsored by the Austrian Economic Association and the Austrian Institute of Economic Research

Empirica publishes empirical and theoretical work on all economic aspects of European Integration. The topics may range from all challenges concerning the deepening of the European Union (Single Market, Lisbon Agenda, EMU) to enlargement and the external relations of the EU (globalisation).

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Zoryana Olekseyuk, Edward J. Balistreri
Trade liberalization gains under different trade theories: a case study for Ukraine
Empirica, 2018, 45(3), S.507-542, http://www.springer.com/10663
We analyse the deep and comprehensive free trade area (DCFTA) between Ukraine and the EU using a multi-regional general-equilibrium simulation model. Three alternative trade structures are implemented: 1. a standard specification of perfect competition based on the Armington assumption of regionally differentiated goods; 2. monopolistic competition among symmetric manufacturing firms; and 3. a competitive selection model of heterogeneous manufacturing firms. Across these structures the DCFTA indicates relatively large gains for Ukraine of more than 3 percent. We show, however, that the gains for Ukraine are lower when we consider monopolistic competition in manufacturing. This is attributed to a movement of resources into Ukraine's traditional export sectors to the EU, which produce under constant returns. While there is little danger of deindustrialisation dominating the overall welfare gains, we do observe substantially lower gains when we consider monopolistic competition. To our knowledge, this is the first empirical confirmation of the theoretic predication that the relative gains from trade in monopolistic competition models might be lower than under perfect competition in the context of a numeric simulation of economic integration. Under the popular heterogeneous-firms monopolistic competition theory we find significant firm selection effects indicating welfare impacts for Ukraine that are less than under the Armington structure but above those found under symmetric firms and monopolistic competition. These results are important considerations for Ukraine's overall development strategy.
JEL-Codes:F12 C68 O12 O14
Keywords:DCFTA, Ukraine, EU, Armington, New trade theory, Krugman, Melitz
Forschungsbereich:Industrie-, Innovations- und internationale Ökonomie
Sprache:Englisch

Managing Editor

Univ.-Prof. MMag. Dr. Harald Oberhofer

Funktion: Ökonom (Senior Economist), Editor-in-Chief Empirica
Forschungsgruppe: Industrie-, Innovations- und internationale Ökonomie