The impact of the Eurasian customs union on the economy of Kazakhstan

The dissertation investigates the effect of changes in trade policy in Kazakhstan due to establishment of the Eurasian Economic Union (EEU). The study provides new evidence on the effects of Customs Union (CU) on its members. EEU started as Customs Union between Russia, Kazakhstan and Belarus which was established in 2010. Customs union became EEU in January 2012, when new international agreements, which allowed free movement of capital and work force between three countries, were put into force. Armenia and Kyrgyzstan joined EEU in 2015. According to theory, the main consequences of entry to the CU are an increase in tariff barriers and a decrease of non-tariff barriers between countries of the CU. The decrease of non-tariff barriers between countries of the CU might lead to trade creation between CU members, and could make Kazakhstan’s market more attractive for FDI inflows. The increase in the common external tariffs (CET) with non-members of CU might lead to trade diversion with suppliers outside the CU; however, it might also lead to investment creation of horizontal FDI as it might motivate firms that supplied market through export to “jump” the high CET through establishing production in the host country. Sanction wars of one of the member of the CU could either increase the trade between neighbours and sanctioning countries, (trade might fall due to the increase transportation costs), or trade might increase as neighbour of sanctioned country may become a transport hub of supplies to target country for products banned by sending countries. The dissertation focuses on applying econometric methods to analyse the effect of the Eurasian Economic Union (EEU) on the economy of Kazakhstan. In the empirical work, time series and panel data techniques are used. The results suggest that the increase of tariff rates after the establishment of EEU decreases imports to Kazakhstan from non-EEU countries and attract FDI inflows in non-extractive industries; and that decrease of non-tariff barriers between EEU countries does not make Kazakhstan’s market more attractive for FDI inflows, but increases exports from Kazakhstan to other ECU countries. In addition, sanction wars between Russian and Western countries moderately affected imports to Kazakhstan from Western countries