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Stopped TTIP? Its potential impact on the world and the role of neglected FDI

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  • Latorre, María C.
  • Yonezawa, Hidemichi

Abstract

The Transatlantic Trade and Investment Partnership (TTIP) has been one of the most heavily debated issues in international economics over the last few years. We analyze its potential impact on the world, including both insiders and outsiders of the agreement, using a Computable General Equilibrium (CGE) model with Foreign Direct Investment (FDI) under imperfect competition. In our simulation, TTIP consists of reductions of tariffs, non-tariff barriers and barriers to FDI. Our results show that the FDI component, which has often been neglected in previous studies, would contribute to nearly half of the overall impact of TTIP for the US and nearly one third for the EU. Insiders would heavily benefit from TTIP, whereas, it would be slightly negative for outsiders (Middle East, Sub-Saharan Africa, Latin America, Southeast Asia and Other Advanced Countries), except for the big Asian economies (China, Japan and India), which would remain unaffected. The slightly negative effects would turn into positive with an “inclusive TTIP” (i.e., one avoiding third country discriminating rules and standards). An inclusive TTIP would benefit both insiders, who would gain more than with the standard TTIP, and outsiders, who would be better off than without the TTIP. Welfare, GDP, wages, as well as aggregate imports and exports of the world economy would clearly increase following either a modest or ambitious TTIP agreement. Our results suggest that policy makers should resume TTIP negotiations and try to strike an inclusive and ambitious deal.

Suggested Citation

  • Latorre, María C. & Yonezawa, Hidemichi, 2018. "Stopped TTIP? Its potential impact on the world and the role of neglected FDI," Economic Modelling, Elsevier, vol. 71(C), pages 99-120.
  • Handle: RePEc:eee:ecmode:v:71:y:2018:i:c:p:99-120
    DOI: 10.1016/j.econmod.2017.12.006
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    Cited by:

    1. Hosoe, Nobuhiro, 2018. "Impact of border barriers, returning migrants, and trade diversion in Brexit: Firm exit and loss of variety," Economic Modelling, Elsevier, vol. 69(C), pages 193-204.
    2. repec:eee:chieco:v:47:y:2018:i:c:p:172-188 is not listed on IDEAS

    More about this item

    Keywords

    Foreign direct investment; Multinationals; Trade agreements; Computable general equilibrium; CGE; Monopolistic competition;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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