The Empirical Evidence of the EU–Russia Failed Strategic Partnership: Did it have a Positive Impact on Bilateral Trade?

Abstract

Many observers were casting doubts about the existence of a strategic partnership between Russia and the European Union long before the annexation of Crimea and the subsequent strained relations between the two blocs. Nevertheless, the main challenge of this article is to prove that there was indeed a positive effect regarding the strategic partnership on bilateral trading – together with such factors as the growth of the Russian and EU GDPs per capita, the devaluation of the Russian currency and the oil price increase – by applying the Gravity Model. Based on this model, it was also confirmed that there was a negative effect of the geographical distance and sanctions between parties on the EU–Russia trade flow. Moreover, we tried to predict by means of the Error Correction Models how EU–Russia bilateral trade would have changed according to a scenario wherein the parties continued being strategic partners, and had the sanctions not been imposed. As such, and by the method described, not only was it empirically confirmed that the major partners would have received the most benefit from the strategic partnership with Russia but even Russia’s smaller trading partners are incurring significant welfare losses from sanctions, along with Russia itself.

The Empirical Evidence of EU–Russia Bilateral Trade under Sanctions and Oil Price Shocks

“…Hufbauer and Oegg [42] for instance, included a set of dummy variables to indicate current or previous economic sanctions between two countries to the gravity model with a view toward estimating the impact of economic sanctions on US trade. Garashchuk et al [43] have recently estimated the Eurasian Economic Union's trade flow with integration groupings including such variables as sanctions and oil price volatility.…”