Effects of the Free Trade Agreement between the European Union and Ukraine on world trade and production efficiency of Ukrainian sunflower oil

This dissertation consists of two essays that explore the effects of the Deep and Comprehensive Free Trade Area between the European Union and Ukraine on global sunflower oil markets.

The first essay analyzes the effects of this bilateral agreement on the world sunflower complex markets. We modify a spatial equilibrium model by incorporating the vertical and horizontal links between the primary commodity (seeds) and two final by-products (oil and meal). Our empirical analysis covers 8 regions - the leading producers and consumers in the sunflower complex. We find that Ukraine expands its sunflower oil exports to the EU by 592.47 thousand metric tons (an increase of 80%) as a result of this agreement. As a consequence, EU’s sunflower oil price decreases by $17.42 per metric ton, benefiting EU’s consumers by $81.4 million. However, EU’s total net welfare decreases by $10.3 million, while Ukraine’s increases by $32.7 million.

The second essay analyzes efficiency of Ukrainian sunflower oil industry using the Stochastic frontier analysis (SFA) framework. Our dataset is an unbalanced panel of 2013-2018 yearly data on 49 Ukrainian sunflower seed crushing plants. Although the crushing technology is quite homogeneous for all the analyzed firms, we argue that traditional single-frontier models are not appropriate for this case. Instead, we perform and compare three different SFA estimators that are best suited to capture latent heterogeneity, i.e., Latent Classes model (Orea and Kumbhakar 2004), Random coefficients model (Tsionas 2000), and a recent model of time-varying true individual effects with endogenous regressors (TVTIEE) proposed by Kutlu et. al. (2019). These estimators have their own advantages and limitations and, given that our dataset is quite small, it is reasonable to compare them rather than choose one. We find that inefficiency decreases over time only for the plants that export sunflower oil to the European Union and produce refined oil. We also find that firms that belong to Kernel corporation are more efficient and plants, which refine oil are less efficient in crushing. Firm size (crushing capacity) does not affect its efficiencies, but rather can serve as a heterogeneity determinant.