Free Trade Between Eu And Russia Economics Essay
“Ville” (2005) highlighted the costs and benefits of free trade between EU and Russia. The article illustrated that free trade agreement between EU and Russia had lead to negative terms of trade (TOT) for Russia and the resultant effect on its welfare. It also revealed the effect of free trade if combined with productivity would lead to increase in welfare, and will outweigh the negative impact of terms of trade (TOT). Output in some sectors of economy had increased in Russia while in some sectors a decline had been observed in production which purely indicated the symptoms of Dutch disease.
The construction of its model was carried out with a GTAP computable general equilibrium model using the latest database. The main variables that were considered to be affecting the GDP expenditure components in the EU and Russia were consumption, investment, government consumption, exports, imports and GDP. The GTAP database used covers elements such as the structure of production, bilateral trade data, consumption and intermediate use of commodities and services.
The paper evaluated three different enlargement simulations. The first enlargement considered the abolishment of tariff and export subsidies between the EU and the new member states. The second scenario was related to the EU enlargement and the inclusion of its internal market which had an effect on these economies through domestic investment, FDI and trade. The inclusion of the internal markets decreased administrative and technical barriers. The third part included the total productivity increase among the member states.
The next element discussed is the enlargement to the Russian Federation. It also involved the same type of case as in EU such as removal of bilateral tariffs, and a factor productivity increase in the former Soviet Union (FSU).
The results concluded that free trade agreement between EU and Russia was favorable for Russia. Total output increased but it did not lead to economic welfare. The main reason for that was the deterioration of Russia’s TOT. However, improved productivity in Russia made the free trade agreement with the EU advantageous.
Another article by “Ataman Aksoy” in year 2006 concluded that trade liberalization has been followed by acceleration in exports of goods & services, investments & manufacturing exports. As against the common belief, outward orientation actually seems to have increased export diversification and did not lead to deindustrialization. He explained these increases as not a matter of income per capita level and was indeed quiet significant in Sub-Saharan Africa. Developing nations were the ones who benefitted from these reforms.
The methodology used in this paper was firmly rooted in the empirical literature on income convergence.
The analysis done concluded that the results after the incorporation of reforms resulted in an increased 1.2 percentage points compared to the pre-reforms period of highly expansionary state policies and large external borrowings. There was a 2.6 % increase in the GDP growth after the incorporation of these reforms. There were two main publications carried out by the World Bank identifying a year of liberalization policies & concluding that trade liberalization did lead to increased GDP. The main elements discussed where liberalization did not affect the growth were factors such as abolishing of communist regimes by some nations or rebounding from a short term recession.
Cross country representative study, Balassa (1978) concluded the fact that outward oriented regime and economic growth had a positive relation when analyzed. This was observed by studying the economies that experienced higher export growth which led to significant increase in their GDP.
One of the studies by Warner provide evidence that exchange rate distortion is one of the key factors that reflect that trade policy stance more than anything else.
“Kenichi Kawasaki” published in the year 2003 highlighted how the Japanese Free Trade Agreements (FTAs) had affected Asia and the Computable General Equilibrium (CGE) model of global trade. It also discussed the implications of the terms of trade and the outcomes of these agreements on the trade liberalization. The author explained that capital formation mechanisms, including the international capital formation and capital accumulation positively impact the macroeconomic gains in the ASEAN countries.
Research done by Kawasaki (2003) deduced that countries will excel and will benefit only from those sectors and commodities in which they have a comparative advantage. Like Japan will be more competitive in technology intensive goods and ASEAN countries would gain in labor-intensive sectors from global trade liberalization.
With reference to the World Trade Organization (WTO), North-American Free Trade Agreement (NAFTA), European Union (EU) and Asia Pacific Economic Cooperation (APEC) the history of trade liberalization in Japan and Singapore was traced. Data based research was used as the main tool to elaborate the Global Trade Analysis Project (GTAP) model that held assumptions to liberalize trade within Japan.
Therefore, it was concluded in this research that the removal of import protections and investment liberalization had been a source of gain that allowed resource allocation along with structural reforms leading towards transition in capital and technology intensive manufacturing sectors. The article proved that trade liberalization had not only benefited Japanese industries but the associated countries; Korea, China, Singapore. Aiming towards achieving production goals till 2020 the macroeconomic expansion will be gained by the existing FTA.
“Indra Nath Mukherji” contributed towards the topic regarding the trade agreements present between the South Asian countries. She dealt with the impacts of South Asian Preferential Trading agreements (SAPTA) upon the Indian and Pakistani trade. This research also took into account the implications of SAPTA on the trade between these two countries that aims to reduce the NTBs and promote liberalization throughout the region.
She used quantitative data of all the member states of the SAARC and focused on Indo-Pak trade relation that showed increasing trends after the implementation of the concessions imposed by SAARC and the establishment of SAPTA. According to the study, the range of products traded increased due to tariff cuts that were not prevalent in the post-liberalization era till 1997. Onwards 2003 the inclination to better trading prospects are evident through the graphical illustration given in the research. The article provided information based on the historical data of the SAARC of India’s preferential imports from Pakistan as compared to its exports. The presence of constraints hindering the free trade were highlighted by the author was Pakistan’s strict trading policies with India in case of granting them NFN status. Further, the Non- Tariff Barriers (NTF) by both the countries limits the presence of trade.
To sum up, the author has provided the background of the fluctuating Indo-Pak trade in the rounds of the SAARC and the SAPTA. This concludes that although extensively positive trade between the countries is not visible, fair amount of individual basket of products are exchanged that is the achievement of SAPTA since the 1990s.
“Robert E. Scott (2003)” discussed the NAFTAs formation, its performance and its impacts upon the U.S economy and their macroeconomic policies. North-American Free Trade Agreement initiated in 1993 with the basic aim to facilitate the investors with guarantees to favor direct foreign investment and create free trade zones resulted in job losses in many regions.
The study explained that NAFTA had been valuable for US in some cases but also had affected the economy adversely in some set-ups. US trade deficit had risen with Mexico and Canada which led to displacement of production and the consequent unemployment. Not only this NAFTA had caused income inequality but had suppressed real wages in USA as well. Investors had a favorable field to invest as against the workers and environment having a hard time.
The article included illustrations from the Bureau of Labor Statistics' and other authentic sources that aid development of the stance. It concluded with the outcomes of increased macroeconomic pressures due to the unplanned and inappropriate policies of NAFTA. The author elaborated that NAFTA highly emphasized on the export benefits while ignored the growth of import that resulted from liberalization, thus, it overlooked the fact that trade balance needed to be maintained. Although this led to labor market problems in the U.S economy, NAFTA had enforced labor rights, standards and had shown a fall in the union issues over the time.
“Suleiman D. Mohammad.” in 2008 studied the role of exchange rate on balance of trade. The objective was to study exchange rate depreciation and its respective link to the trade balance in Pakistan. The exchange rate plays an important role for policy making in an open economy. It affected many variables such as foreign exchange reserve, foreign direct investments (FDI), trade flows, international remittances, capital flows and investment decisions of an economy.
The Marshall Learner was applied in this study which described the long run perspective of the Pakistan economy. The two variables, namely depreciation and trade balance were related to each other in the context of import and export elasticites. The author explained the view that an elasticity of more than one of the summation of totals of imports and exports must be greater than one for the depreciation to have a positive effect on the trade balance of Pakistan. The short run conditions were also specified where the author explained the relationship of depreciation to trade balance was inelastic and linked it to be the possible cause for the ‘J’ curve for Pakistan in the short run.
The author had favored the depreciation of currency to be positive for the Pakistani export but at the same time highlighted some other factors such as the reluctant nature of policy makers to depreciate the currency which led to problems such as the distortion of other macroeconomic variables namely interest rate, inflation and monetary aggregate.
Nature of exchange rate was discussed where the present floating exchange rate system had been analyzed which had threats from the speculation view and led to undermining of Pakistani exchange rate market which would eventually damage the exchange rate policy of Pakistan.
Moritz Cruz, in his research in 2008 discussed the effects of trade liberalization on China and Mexico. It was highlighted in this study that liberalization is beneficial only if the strategies designed to implement it were appropriate enough.
According to Cruz, failure of the Mexican economy to achieve the advantages of free trade was due to implementation of conventional free trade theory that led to greater costs of applying the free trade principle. The idea of government intervention and controls in promoting liberalization was important as China excelled in its aims to reduce poverty, achieve high industrial growth and attain trading benefits. This was a result of public and private collaboration towards trade liberalization. The concept of ruthless free trade policies was held responsible for its failure in countries like Mexico. The comparative advantage principle and its presence to extensive competition in the global world minimized the gains while increasing its costs.
The article is validated through references of secondary data that comprised of the historical development of the Chinese and the Mexican economies. Trade and GDP progress graphs provided overview of the study.
As the conclusion, the contrast of the two economies that initiated the liberalization polices at the same time resulted in different outcomes due to improper development strategies by Mexico, whereas China progressed through focusing on export-led policies.
Dilip Dutta and Nasiruddin Ahmad in 2006 explained the growth in Pakistan with respect to the trading policies practiced here. Main purpose of the research was to analyze the after effects of unplanned and ruthless imposition of these trade liberalization policies of 1973 to 1995. The author examined the reason of rapid growth in the consequent years and its eventual decline.
Time series data for the respective years was used to analyze the effect and changes these policies had over time. A strong relationship between the model and growth was created by providing the variables and their changes in accordance with the trading policies that resulted in high export earnings in the initial years. Inadequacy of the industrial potential of Pakistan was also highlighted that contributed to the failure of implementing liberalization and free trade in the region. Through using economic models the authors had proved the outcomes of the application of these policies till the year 2005.
It was concluded that the labor force dynamics and the exports are the main factors of industrial function of Pakistan. Human capital being the foremost input required development and effective long run policies needed to be designed to experience growth in real terms.
Krisztina Kis-Katos (2009) and Robert Sparrow studied the impacts of trade liberalization on the child labor present in Indonesia.
Primary data was collected for this study which included surveys of 261 regions which analyzed the effect of trading policies on child labor. The focus of the study was on the rural population including children lying in the age group of 10 – 15.
Thorough study of the sensitivity analysis and the exogenity tests, the research showed that the decrease in tariffs in 1990s had positive long term effect on the child labor reduction. Susenas is conducted annually at a district level to look for socio-economic and outcome variables at
Thus, it was concluded that the increase in children’s contribution to the workforce was a result of raised incomes caused by the introduction of liberalization. The increased relative wages of the overall workforce was also mentioned as one of the main factor that condensed child labor and the fact that trade conditions brought more opportunities to the rural class and attracted investment in conditioning the human capital. The research also showed the augmenting labor mobility as a consequence of the trade reforms. Liberalization is therefore summed as a constructive approach in this regard for Indonesia.
Masahiro Kawai and Ganeshan Wignaraja in 2010 had underlined that FTAs are present in the Northeast Asian economies and their global impacts are worth studying. The objective of the study was to overview the constructive outcomes of implementing these policies.
The explanation of this research was revealed by the facts used to demonstrate the effects of free trade policies. Methodology applied by the authors was to align the context with the view of rationalizing the analysis with the trends till the present with the collaboration of a multi-country survey.
With reference to the Asian-Development Bank the authors concluded the fact that large developing economies of the East Asia were paving their way towards the imposition of free trade to allow the advantages of comparative advantage and enhance growth. The article discussed the Asian giants; China, Korea, Singapore and Japan in association with the policies implemented by the WTO. It also presented the net benefits to these countries derived by entering into liberalized contracts over the last decade. The variety in the use of these FTA strategies by these states and their respective global and local effects were also highlighted.
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