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Going Deep: The Trade and Welfare Effects of TTIP Revised

Author

Listed:
  • Gabriel Felbermayr

    ()

  • Rahel Aichele

    ()

  • Inga Heiland

Abstract

Since July 2013, the EU and the United States have been negotiating a preferential trade agreement, the Transatlantic Trade and Investment Partnership (TTIP). We use a multicountry, multi-industry Ricardian trade model with national and international inputoutput linkages to quantify its potential economic consequences. We structurally estimate the model's unobserved parameters and the effect of existing preferential trade agreements on trade cost. With those estimates in hand, we simulate the trade, value added, and welfare effects of the TTIP, assuming that the agreement would eliminate all transatlantic tariffs and reduce non-tariff barriers as other deep PTAs have done in the past. We find a long-run increase of real income of .4% for the EU, by .5% for the United States, and by -.02% for the rest of the world relative to the status quo. However, there is substantial heterogeneity across the 140 geographical entities that we investigate. Gross value of EU-US trade is predicted to increase by 50%, but the content of EU and US value added would decrease, signalling a deepening of the transatlantic production network. Moreover, we quantify trade diversion effects on third countries and find that those are less severe for value added trade than for gross trade. This highlights the importance of global value chains in understanding the effects of the TTIP on outsiders and the global economy.

Suggested Citation

  • Gabriel Felbermayr & Rahel Aichele & Inga Heiland, 2016. "Going Deep: The Trade and Welfare Effects of TTIP Revised," ifo Working Paper Series 219, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
  • Handle: RePEc:ces:ifowps:_219
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    File URL: http://www.cesifo-group.de/DocDL/wp-2016-219-aichele-felbemayr-heiland-welfare-ttip.pdf
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    References listed on IDEAS

    as
    1. Maria Cipollina & Luca Salvatici, 2010. "Reciprocal Trade Agreements in Gravity Models: A Meta-Analysis," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 63-80, February.
    2. Lionel Fontagné & Julien Gourdon & Sébastien Jean, 2013. "Transatlantic Trade: Whither Partnership, Which Economic Consequences?," CEPII Policy Brief 2013-01, CEPII research center.
    3. Rahel Aichele & Inga Heiland, 2016. "Where is the Value Added? Trade Liberalization and Production Networks," CESifo Working Paper Series 6026, CESifo Group Munich.
    4. Joseph Francois & Miriam Manchin & Hanna Norberg & Olga Pindyuk & Patrick Tomberger, 2013. "Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment," IIDE Discussion Papers 20130401, Institue for International and Development Economics.
    5. Egger, Peter & Larch, Mario & Staub, Kevin E, 2012. "Trade Preferences and Bilateral Trade in Goods and Services: A Structural Approach," CEPR Discussion Papers 9051, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:ces:ifofob:88 is not listed on IDEAS
    2. repec:ces:ifofor:v:18:y:2017:i:4:p:28-36 is not listed on IDEAS
    3. Toshihiro Okubo & Fukunari Kimura & Gabriel Felbermayr & Marina Steininger, 2018. "Quantifying the EU-Japan Economic Partnership Agreement," Keio-IES Discussion Paper Series 2018-015, Institute for Economics Studies, Keio University.
    4. 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.
    5. repec:ces:ifofob:89 is not listed on IDEAS
    6. Gabriel Felbermayr & Marina Steininger, 2016. "Wie gefährlich ist die angekündigte Handelspolitik von Donald Trump?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(22), pages 34-41, November.
    7. repec:ces:ifofob:93 is not listed on IDEAS
    8. repec:bpj:pewipo:v:18:y:2017:i:1:p:32-55:n:2 is not listed on IDEAS

    More about this item

    Keywords

    Structural gravity; preferential trade agreements; TTIP;

    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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