Potential Macroeconomic Effects of the Trade Collapse Due to Economic and Political Crises: The Case of Poland

Abstract

Recent military conflict in Ukraine and Russia, directly and indirectly through resulting embargoes, is detrimental to Poland’s trade flows with both countries, its major extra-EU trade partners. We make an attempt to quantify the macroeconomic effects of such a trade collapse both in a bilateral setting where main trade flows affected are those of Poland, Russia and multilateral, and where the remaining EU countries cease trading with Russia. We focus on non-oil trade flows in goods. We employ a Global Trade Analysis Project (GTAP) computable equilibrium model with the accompanying GTAP database and model the trade collapse with an increase of non-tariff barriers to a prohibitive level. The simulations allow us to trace the resulting changes in trade flows, output, factor prices, and overall economic welfare. We expect that while the small-scale trade collapse affects just selected sectors in Poland (mainly food and agriculture) and will not greatly affect the economic wellbeing of Poland, the comprehensive trade embargo encompassing the whole EU may have much larger effects as a result of the demand for Polish intermediate goods embedded in EU-15 exports to the European Union.