Strategic comparison of Moldova’s Integration options: Deep and Comprehensive Economic Integration with the EU versus the Accession to the Russia-Belarus-Kazakhstan Customs Union

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Publishing date: Thursday, 07 June 2012
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This paper was developed for analyzing and comparing the economic impact of the two main integration options which Moldova has: 1) enhancing the economic integration with the European Union by establishing a Deep and Comprehensive Free Trade Area and 2) joining the Russia-Belarus-Kazakhstan Customs Union. The analysis is based on the results of economic simulations performed using a Computable General Equilibrium (CGE) model. The simulations performed show that enhancing trade integration with the EU is by far a more preferred option in terms of economic impact than the accession to the Customs Union of Russia-Belarus-Kazakhstan. Despite the costs related to the implementation of the sanitary and phytosanitary standards recognized by the UE, the first option provides Moldova a path for sustainable economic growth and significant welfare gains. The second option has negative effects over citizen’s welfare and economic growth, undermining the efforts of technological modernization and of making full use of Moldovan economy’s competitive potential. The 10% discount promised by the Russian Federation on the price of natural gas delivered does not compensate the negative economic effects caused by the increased custom duties within the Custom Union.

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