IDEAS home Printed from https://ideas.repec.org/p/dae/daepap/16-03.html
   My bibliography  Save this paper

CETA Without Blinders: How Cutting ‘Trade Costs and More’ Will Cause Unemployment, Inequality and Welfare Losses

Author

Listed:
  • Pierre Kohler
  • Servaas Storm

Abstract

Proponents of the Comprehensive Economic and Trade Agreement (CETA) emphasize its prospective economic benefits, with economic growth increasing due to rising trade volumes and investment. Widely cited official projections suggest modest GDP gains after about a decade, varying from between 0.003% to 0.08% in the European Union and between 0.03% to 0.76% in Canada. However, all these quantitative projections stem from the same trade model, which assumes full employment and neutral (if not constant) income distribution in all countries, excluding from the outset any of the major risks of deeper liberalization. This lack of intellectual diversity and of realism shrouding the debate around CETA’s alleged economic benefits calls for an alternative assessment grounded in more realistic modeling premises. In this paper, we provide alternative projections of CETA’s economic effects using the United Nations Global Policy Model (GPM). Allowing for changes in employment and income distribution, we obtain very different results. In contrast to positive outcomes projected with full-employment models, we find CETA will lead to intra-EU trade diversion. More importantly, in the current context of tepid economic growth, competitive pressures induced by CETA will cause unemployment, inequality and welfare losses. At a minimum, this shows that official studies do not offer a solid basis for an informed decision on CETA.

Suggested Citation

  • Pierre Kohler & Servaas Storm, 2016. "CETA Without Blinders: How Cutting ‘Trade Costs and More’ Will Cause Unemployment, Inequality and Welfare Losses," GDAE Working Papers 16-03, GDAE, Tufts University.
  • Handle: RePEc:dae:daepap:16-03
    as

    Download full text from publisher

    File URL: http://www.bu.edu/eci/files/2020/01/16-03CETA.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marc J. Melitz & Daniel Trefler, 2012. "Gains from Trade When Firms Matter," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 91-118, Spring.
    2. Marc Lavoie & Gabriel Rodriguez & Mario Seccareccia, 2004. "Similitudes and Discrepancies in Post-Keynesian and Marxist Theories of Investment: A Theoretical and Empirical Investigation," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 127-149.
    3. Ferdi De Ville & Gabriel Siles-Br�gge, 2015. "The Transatlantic Trade and Investment Partnership and the Role of Computable General Equilibrium Modelling: An Exercise in 'Managing Fictional Expectations'," New Political Economy, Taylor & Francis Journals, vol. 20(5), pages 653-678, October.
    4. Caroline Freund & Emanuel Ornelas, 2010. "Regional Trade Agreements," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 139-166, September.
    5. Ocampo, Jose Antonio & Taylor, Lance, 1998. "Trade Liberalisation in Developing Economies: Modest Benefits but Problems with Productivity Growth, Macro Prices, and Income Distribution," Economic Journal, Royal Economic Society, vol. 108(450), pages 1523-1546, September.
    6. Jeronim Capaldo, 2014. "The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability," GDAE Working Papers 14-03, GDAE, Tufts University.
    7. Lawrence H. Summers, 2015. "Demand Side Secular Stagnation," American Economic Review, American Economic Association, vol. 105(5), pages 60-65, May.
    8. Jeronim Capaldo & Alex Izurieta & Jomo Kwame Sundaram, 2016. "Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement," GDAE Working Papers 16-01, GDAE, Tufts University.
    9. Pierre Kohler, 2015. "Redistributive Policies for Sustainable Development: Looking at the Role of Assets and Equity," Working Papers 139, United Nations, Department of Economics and Social Affairs.
    10. Caroline Freund & Emanuel Ornelas, 2010. "Regional trade agreements: blessing or burden?," CentrePiece - The magazine for economic performance 313, Centre for Economic Performance, LSE.
    11. Joseph Francois & Hanna Norberg & Martin Thelle, 2007. "Economic Impact of a Potential Free Trade Agreement (FTA) Between the European Union and South Korea," IIDE Discussion Papers 20070301, Institue for International and Development Economics.
    12. Esquivel, Gerardo & Rodriguez-Lopez, Jose Antonio, 2003. "Technology, trade, and wage inequality in Mexico before and after NAFTA," Journal of Development Economics, Elsevier, vol. 72(2), pages 543-565, December.
    13. Mary Hallward-Driemeier, 2003. "Do bilateral investment treaties attract foreign direct investment? Only a bit - and they could bite," Policy Research Working Paper Series 3121, The World Bank.
    14. Pierre Kohler, 2015. "Redistributive Policies for Sustainable Development: Looking at the Role of Assets and Equity," Working Papers id:6431, eSocialSciences.
    15. Richard P.F. Holt & Steven Pressman & Clive L. Spash (ed.), 2009. "Post Keynesian and Ecological Economics," Books, Edward Elgar Publishing, number 12988.
    16. Laurence Ball, 2014. "Long-term damage from the Great Recession in OECD countries," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(2), pages 149-160, September.
    17. Blanchard, Oliver & Cerutti, Eugenio & SUmmers, Lawrence, 2015. "Inflation and Activity - Two Explorations and Their Monetary Policy Implications," Working Paper Series 15-070, Harvard University, John F. Kennedy School of Government.
    18. Kirkpatrick, Colin & Raihan, Selim & Bleser, Adam & Prud'homme, Dan & Mayrand, Karel & Morin, Jean Frederic & Pollitt, Hector & Hinojosa, Leonith & Williams, Michael, 2011. "Trade sustainability impact assessment (SIA) on the comprehensive economic and trade agreement (CETA) between the EU and Canada: Final report," MPRA Paper 28812, University Library of Munich, Germany.
    19. Laurent Cordonnier & Thomas Dallery & Vincent Duwicquet & Jordan Melmies & Franck van de Velde, 2018. "Le coût du capital et la financiarisation de l'économie," Post-Print hal-02399226, HAL.
    20. Storm, Servaas & Naastepad, C. W. M., 2012. "Macroeconomics Beyond the NAIRU," Economics Books, Harvard University Press, number 9780674062276, Spring.
    21. Federico Cingano, 2014. "Trends in Income Inequality and its Impact on Economic Growth," OECD Social, Employment and Migration Working Papers 163, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fritz Breuss, 2017. "A Macroeconomic Model of CETA's Impact on Austria," WIFO Working Papers 532, WIFO.
    2. Alex Izurieta & Pierre Kohler & Juan Pizarro, 2018. "Financialization, Trade, and Investment Agreements: Through the Looking Glass or Through the Realities of Income Distribution and Government Policy?," GDAE Working Papers 18-02, GDAE, Tufts University.
    3. Thomas Ferguson & Paul Jorgensen & Jie Chen, 2021. "The Knife Edge Election of 2020: American Politics Between Washington, Kabul, and Weimar," Working Papers Series inetwp169, Institute for New Economic Thinking.
    4. Paul Bogdan Zamfir, 2018. "Reflections On Romania'S Trade With Canada–As Member Of Nafta," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 0, pages 90-97, December.
    5. Jacques Sapir, 2020. "Basic Principles of Economic Sovereignty and the Question of the Forms of Its Exercise," Studies on Russian Economic Development, Springer, vol. 31(2), pages 129-135, March.
    6. Monica Hernandez, 2019. "The Rising Importance of Non-tariff Measures and their use in Free Trade Agreements Impact Assessments," GDAE Working Papers 19-03, GDAE, Tufts University.
    7. Pierre Kohler & Francis Cripps, 2018. "Do Trade and Investment (Agreements) Foster Development or Inequality?," GDAE Working Papers 18-03, GDAE, Tufts University.
    8. Katharine Heyl & Felix Ekardt & Paula Roos & Jessica Stubenrauch & Beatrice Garske, 2021. "Free Trade, Environment, Agriculture, and Plurilateral Treaties: The Ambivalent Example of Mercosur, CETA, and the EU–Vietnam Free Trade Agreement," Sustainability, MDPI, vol. 13(6), pages 1-24, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nishi, Hiroshi & Stockhammer, Engelbert, 2020. "Distribution shocks in a Kaleckian model with hysteresis and monetary policy," Economic Modelling, Elsevier, vol. 90(C), pages 465-479.
    2. repec:hal:spmain:info:hdl:2441/5rtilga41c899ab0rctd3cp2r3 is not listed on IDEAS
    3. Dosi, Giovanni & Pereira, Marcelo C. & Roventini, Andrea & Virgillito, Maria Enrica, 2018. "The labour-augmented K+S model: a laboratory for the analysis of institutional and policy regimes," GLO Discussion Paper Series 241, Global Labor Organization (GLO).
    4. Francesco Furlanetto & Ørjan Robstad & Pål Ulvedal & Antoine Lepetit, 2020. "Estimating hysteresis effects," Working Paper 2020/13, Norges Bank.
    5. Nicolò Maffei-Faccioli, 2021. "Identifying the sources of the slowdown in growth: Demand vs. supply," Working Paper 2021/9, Norges Bank.
    6. Váry, Miklós, 2018. "A hiszterézis közgazdasági jelentőségéről posztkeynesi szemléletben [The economic relevance of hysteresis from a post-Keynesian perspective]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1006-1047.
    7. Nicolo Maffei-Faccioli, 2020. "Identifying the Sources of the Slowdown in Growth: Demand vs. Supply," 2020 Papers pma2978, Job Market Papers.
    8. Guilherme Spinato Morlin & Nikolas Passos & Riccardo Pariboni, 2021. "Growth theory and the growth model perspective: Insights from the supermultiplier," Department of Economics University of Siena 869, Department of Economics, University of Siena.
    9. Fontanari, Claudia & Palumbo, Antonella & Salvatori, Chiara, 2020. "Potential Output in Theory and Practice: A Revision and Update of Okun's Original Method," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 247-266.
    10. Zhang, Xiaoge, 2022. "Belief-driven growth slowdowns and zero-bounded risk-free rate," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    11. Barbieri Góes, Maria Cristina & Deleidi, Matteo, 2022. "Output determination and autonomous demand multipliers: An empirical investigation for the US economy," Economic Modelling, Elsevier, vol. 116(C).
    12. Zouheir El-Sahli, 2023. "The Partial and General Equilibrium Effects of the Greater Arab Free Trade Agreement," The International Trade Journal, Taylor & Francis Journals, vol. 37(2), pages 185-199, March.
    13. Chad P. Bown & Patricia Tovar, 2016. "Preferential Liberalization, Antidumping, and Safeguards: Stumbling Block Evidence from MERCOSUR," Economics and Politics, Wiley Blackwell, vol. 28(3), pages 262-294, November.
    14. Abdoulaye Millogo, 2020. "Hysteresis Effects and Macroeconomics Gains from Unconventional Monetary Policies Stabilization," Cahiers de recherche 20-12, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    15. Saggi, Kamal & Wong, Woan Foong & Yildiz, Halis Murat, 2017. "Preferential Trade Agreements and Rules of the Multilateral Trading System," MPRA Paper 76330, University Library of Munich, Germany.
    16. Barnichon, Regis & Matthes, Christian & Ziegenbein, Alexander, 2016. "Assessing the Non-Linear Effects of Credit Market Shocks," CEPR Discussion Papers 11410, C.E.P.R. Discussion Papers.
    17. Maria V. Sokolova, 2016. "Exchange Rates, International Trade and Growth: Re-Evaluation of Undervaluation," IHEID Working Papers 05-2016, Economics Section, The Graduate Institute of International Studies.
    18. István Kónya & Miklós Váry, 2023. "Which Sectors Go On When There Is a Sudden Stop? An Empirical Analysis," CERS-IE WORKING PAPERS 2311, Institute of Economics, Centre for Economic and Regional Studies.
    19. Mikael Juselius & Claudio Borio & Piti Disyatat & Mathias Drehmann, 2017. "Monetary Policy, the Financial Cycle, and Ultra-Low Interest Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 13(3), pages 55-89, September.
    20. Jaime DE MELO & Yvonne TSIKATA, 2014. "Regional integration in Africa: Challenges and prospects," Working Papers P93, FERDI.
    21. Marco Fugazza & Alain McLaren, 2014. "Market Access, Export Performance and Survival: Evidence from Peruvian Firms," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 599-624, August.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dae:daepap:16-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Abdulshaheed Alqunber (email available below). General contact details of provider: https://edirc.repec.org/data/gdtufus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.