Export Potential, Uncertainty, and Regional Integration: Choice of Trade Policy for Ukraine

Abstract

This paper develops a methodology of evaluating trade potential under different integration scenarios using a panel of disaggregated exports. The methodology is applied to compare trade potential of Ukraine under three counterfactual scenarios: joining CU, signing FTA with EU, and joining EU. The analysis indicates that the current trade policy of Ukraine creates high trade policy uncertainty, resulting in underperformance of exports to CU and EU countries. The expected long run gains in Ukrainian exports to all countries under the CU scenario are equal to 17.9 percent over the export level in 2009-2011, under the FTA EU scenario – 36 percent, and under the full EU scenario – 46.1 percent.