Benefits and Costs of DCFTA: Evaluation of the Impact on Georgia, Moldova and Ukraine

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Amat Adarov and Peter Havlik

Joint Working Paper No. 2016-12, December 2016
in cooperation with BertelsmannStiftung
108 pages including 38 Tables and 33 Figures

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The study provides an impact evaluation of the DCFTA implementation in Georgia, Moldova and Ukraine. We analyse benefits and costs that have already materialised or are yet expected to manifest themselves in the longer run in the public and private sectors. While there is little doubt that in the long run the DCFTA will help the beneficiary economies to modernise and transform to a more competitive state, the analysis suggests that the net benefits are highly asymmetric along the time dimension (high costs in the short and medium run – benefits accruing mostly in the longer run), as well as across regions and economic sectors (less competitive sectors and regions will face particularly onerous adjustment costs). In the light of the macroeconomic and geopolitical challenges the DCFTA countries have been facing, this may jeopardise progress of reforms. Based on the analysis we propose several policy recommendations, including careful sequencing of reforms along the approximation to the EU acquis prioritising competitiveness of export-oriented sectors and access to the EU market, attractiveness for FDI and integration into global value chains; focused ‘how-to’ training of businesses; higher financial support from the EU with strict conditionality along with both need-based and competitive performance-based elements, as well as programmes to alleviate social costs in the vulnerable sectors and regions.

 

Reference to wiiw databases: wiiw Annual Database

Keywords: DCFTA; Association Agreement; EU Neighbourhood Policy; Georgia, Moldova, Ukraine; economic integration; policy impact evaluation

JEL classification: F13, F14, F15

Countries covered: Georgia, Moldova, Ukraine

Research Areas: Macroeconomic Analysis and Policy, International Trade, Competitiveness and FDI


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