Free Trade Agreements, Institutions and the Exports of EasternPartnership Countries

Abstract

Following popular protests at home and the fall of the government, Ukraine reversed course andjoined Georgia and Moldova in signing Association Agreements in June 2014. This article hastwo main aims. First, using a gravity model of trade, it estimates the effects of deep and shallowfree trade agreements for the EaP (Eastern Partnership) states with Russia and the EU respectively.Second, by relating the outcomes of the first estimation to the quality of in stitutions, proxied withthe level of democracy and the level of corruption in the selected countries, the paper estimates theeffect on exports of changes in the quality of institutions. The main results show that the EaP coun-tries gain significantly from free trade agreements with the EU but little if anything from free tradeagreements with Russia, and that improvements in the quality of institutions in EaP countries haveplayed an important role in fostering exports.The authors acknowledge the support and collaboration of Project ECO2014-58991-C3-2-R funded by theSpanish Ministry of Economy and Competitiveness and of Project ‘Production Networks and Economic Integration’ fundedby Fundación Caja Castellón-Bancaja