Assessing the Full Extent of Trade Integration between the EU and Russia – A Global Value Chain Perspective

We analyze trade linkages between EU Member States and Russia, taking into account indirect trade links in global value chains. Our analysis is based on data for 2011 from the World Input-Output Database combined with gross trade flows between Russia and individual EU economies. We derive our conclusions from three indicators: gross exports in final use, value added in final use and value added in output. The latter two novel indicators are able to capture direct and indirect links jointly by allocating the full amount of value added from Russia in EU final domestic use and output, and inversely, the full amount of EU value added in Russia’s final domestic use and output. Russia represents the EU’s fourth-largest trade partner in terms of direct export shares, while the EU is Russia’s largest trade partner. In the same vein, Russia’s economy is considerably more dependent on European value added for both final use and output production than vice versa. However, the degree of integration varies greatly among EU Member States. For example, the Baltic states are notably more dependent on value added from Russia than vice versa, and certain economic sectors in the EU, such as the energy sector, utilities and air transport, are strongly dependent on inputs from Russia.