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An innovative CGE assessment of the impact of the TTIP including multinationals and Foreign Direct Investment

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  • Latorre, María C.
  • Yonezawa, Hidemichi

Abstract

The Transatlantic Trade and Investment Partnership (TTIP) is the largest agreement that has ever been negotiated with objectives going beyond trade itself. The partners account for around 40% of world trade and about a third of its GDP. It, therefore, seems to have the potential to affect world relationships. In this paper we focus on the economic impact for outsiders. To that aim we use an innovative Computable General Equilibrium (CGE) with 10 regions (US, UE28, other advanced economies, China, India, Japan, South East Asia, Latin America, Middle East and Sub-Saharan Africa). We analyze in detail the weight in world GDP and trade of the 10 regions, as well as their productive, export and import structures. Then we simulate the impact of the TTIP, obtaining larger estimates than previous CGEs assessing its effects, due to our innovative inclusion of Foreign Direct Investment in the CGE model. We identify the sectors in which the trade and investment integration of the US and the EU would be stronger or weaker, as well as its overall impact. Our results suggest that the effects of the TTIP would be very small but negative for outsiders, with the exception of China, which remains unaffected. This is because the Chinese export structure is heavily specialized precisely in the manufacturing sectors in which integration of the EU and the US is weaker. We find that this pattern somehow prevails among the rest of Asiatic regions, on which the impact is nearly negligible. By contrast, the Middle East and Sub-Saharan Africa are slightly more negatively affected because of their export specialization in agriculture, food, oil and mining. Latin America would also lose a little due to its strong manufacturing integration with the US and its export specialization. We also simulate the results of an “inclusive TTIP”. With such an agreement all regions would gain, even all outsiders, while insiders would experience a more favorable impact than with the “standard TTIP”.

Suggested Citation

  • Latorre, María C. & Yonezawa, Hidemichi, 2016. "An innovative CGE assessment of the impact of the TTIP including multinationals and Foreign Direct Investment," Conference papers 332765, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332765
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