Free Trade Agreements, Institutions and the Exports of Eastern Partnership Countries

Abstract

Following popular protests at home and the fall of the government, Ukraine reversed course and joined Georgia and Moldova in signing Association Agreements in June 2014. This article has two main aims. First, using a gravity model of trade, it estimates the effects of deep and shallow free 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 institutions, proxied with the level of democracy and the level of corruption in the selected countries, the paper estimates the effect on exports of changes in the quality of institutions. The main results show that the EaP countries gain significantly from free trade agreements with the EU but little if anything from free trade agreements with Russia, and that improvements in the quality of institutions in EaP countries have played an important role in fostering exports.