Gabriel Felbermayr, University of Munich and Ifo Institute, Munish

Going Deep: The Trade and Welfare Effects of TTIP

Since July 2013, the EU and the US have been negotiating a preferential trade agreement (PTA), the Transatlantic Trade and Investment Partnership (TTIP). The authors use a multi-country, multi-industry Ricardian trade model with national and international input-output linkages to quantify its potential economic consequences. They structurally estimate the sectoral trade flow elasticities of trade costs and of existing PTAs. They 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. The long-run level of real per capita income would change by 2.12% in the EU, by 2.68% in the US, and by -0.03% in the rest of the world relative to the status quo. However, there is substantial heterogeneity across the 134 geographical entities that they investigate. Gross value of EU-US trade could triple, but its value added would grow by substantially less. Moreover, trade diversion effects are more pronounced in value added trade than in gross trade. This signals a deepening of the transatlantic value chain.

Gabriel Felbermayr is Professor of Economics at the University of Munich and Director of the Center for International Economics at the Ifo Institute in Munich. Gabriel’s main area of research is international trade. He has published extensively in top field journals such as the Journal of International Economics and the Journal of Development Economics as well as in more general-interest economics journals such as the Review of Economics and Statistics, Journal of Economic Theory and American Economic Journal: Economic Policy.

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