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TTIP and Intra-European Trade: Boon or Bane?

Author

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  • Aichele Rahel

    (Ifo Institute – Leibniz Institute for Economic Research, Center for International Economics, University of Munich, Poschingerstr. 5, 81679 München, Germany; CESifo, Poschingerstr. 5, 81679 München, Germany)

  • Felbermayr Gabriel J.

    () (Ifo Institute – Leibniz Institute for Economic Research at the University of Munich, Ludwig-Maximilians-University Munich; CESifo, Poschingerstr. 5, 81679 München, Germany; GEP, Sir Clive Granger Building, University of Nottingham, University Park, Nottingham, NG7 2RD, UK)

  • Heiland Inga

    (Ifo Institute – Leibniz Institute for Economic Research at the University of Munich, Poschingerstr. 5, 81679 Munich, Germany; CESifo, Poschingerstr. 5, 81679 München, Germany)

Abstract

The European Union is the world’s deepest free trade zone. Amongst its members, it has abolished tariffs and lowered non-tariff barriers. This has led to trade creation within Europe and to trade diversion between EU countries and outsiders. Deep trade integration and the resulting mutual dependence has, in the eyes of many, facilitated political integration. The Transatlantic Trade and Investment Partnership (TTIP) will undo some of these effects by means of preference erosion, so that cross-country trade links within Europe may lose relative prominence. However, the presence of a rich fabric of regional value chains in Europe and substantial income effects could counter this development. We provide insights on the empirical importance of these effects based on a New Quantitative Trade Model. We show that TTIP could indeed lower trade integration in Europe since predicted income effects turn out not to be large enough to overcome the effects of preference erosion. However, there is substantial heterogeneity across sectors and countries. One way to minimize preference erosion would be to promote projects and programs to further deepen the EU’s single market.

Suggested Citation

  • Aichele Rahel & Felbermayr Gabriel J. & Heiland Inga, 2016. "TTIP and Intra-European Trade: Boon or Bane?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(6), pages 639-664, December.
  • Handle: RePEc:jns:jbstat:v:236:y:2016:i:1:p:639-664:n:5
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    TTIP; single market; European integration;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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