Applied general equilibrium modeling of the impact of the FTA on Ukraine
Using all the opportunities of the Free trade area (FTA) with the European Union will provide for a 14.1% increase in the real GDP of Ukraine in the long-term. This was the result given by applied general equilibrium modeling of the impact of the FTA on Ukraine. The research was carried out by the Institute for Economic Research and Policy Consulting with support from the European Program Initiative of the International Renaissance Foundation.
According to experts, the key factor in GDP growth is not the lifting of import duties, but the reduction of non-tariff barriers to trade that can be achieved by harmonizing Ukraine’s laws with those of the EU.
Benefits from long-term autonomous trade preferences by the EU are significantly less than the benefits from successful implementation of the FTA. According to the Institute’s calculations, the long-term growth in real GDP will only be 1.5% if the EU unilaterally applies zero import duties for most Ukrainian products.
The study showed that the sectors that will benefit most from an FTA with the EU are agriculture, food, and light industry. The harmonization of technical barriers to trade will be beneficial also for certain sectors of engineering, particularly manufacturing of electrical equipment.
Although all households will benefit from the FTA, these benefits are distributed unevenly. For example, better off households will feel better. Households with more than three people will benefit less.
Experts stress that the model doesn’t factor in other internal and external factors that will influence the development of sectors, such as exchange rate policy or world market prices. Therefore, the findings are not forecasts, but rather a simulation of the direction and level of change in the economy under different conditions.
Contacts:
Institute for Economic Research and Policy Consulting
(+380 44) 278 63 42
institute@ier.kiev.ua
