Regional trade agreements: The impact of the Transatlantic Trade & Investment Partnership (TTIP) on low income countries: Agreement heterogeneity and supply chain linkages

The Transatlantic Trade & Investment Partnership (TTIP) that is currently being negotiated between the EU and USA is aimed to stimulate international trade between the two partners. Most research indicates that the economic effects for the EU and USA are positive, but that with regard to third countries the economic effects seem less certain. Most existing studies point to the (negative) trade diversion effects for third countries. What is neglected in the literature is agreement heterogeneity; the ambition of TTIP is far reaching and the provisions discussed encompass much more than just the standard trade measures. A related topic is the influence of supply chains in determining the impact of TTIP on third countries. If strong supply chains exist between the TTIP partners and third (low income) countries, trade diversion need not occur. In general, we find that some provisions have a statistically significant impact on trade (positive as well as negative). Others have no effect at all, but can be important for other (policy) reasons than trade. The trade effects of TTIP for the EU and USA are positive. Third country effects are diverse, but for the poorest countries they tend to be positive, especially if provisions mutually reinforce each other. Stylized facts on supply chains show that we do not have to modify our results by including supply chains explicitly for the lowest income countries. Instead, supply chain effects are concentrated in middle income countries. This is largely in line with our results for the trade effects.