Economic Benefits of TTIP
Prof. Gabriel Felbermayr, PhD
Ludwig Maximilians Universität München
Warsaw School of Economics
Nov 30, 2015
Ifo Center for International Economics
Ifo Institut
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POLAND: HOW TRADE MATTERS FOR INCOME
Income gains from moving from „autarky“ to status quo of 2008
SVK
HUN
CZE
SVN
BEL
AUT
POL
DEU
NLD
SWE
FRA
ESP
ITA
GBR
USA
Source: Costinot and Rodriguez-Clare (2014).
57%
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POLAND: HOW TRADE MATTERS FOR INCOME
Income gains from moving from „autarky“ to status quo of 2008
SVK
96%
HUN
91%
CZE
87%
SVN
80%
BEL
71%
AUT
64%
POL
57%
DEU
53%
NLD
48%
SWE
46%
FRA
32%
ESP
31%
ITA
27%
GBR
24%
10%
USA
Source: Costinot and Rodriguez-Clare (2014).
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APPROPRIATE RULES FOR XXIst CENTURY TRADE
• WTO rules negotiated 1986-2004 to fit XXth century trade
• International production sharing: new issues, requiring new rules
• Complementarities between trade in final goods, trade in inputs,
trade in services, investment, mobility of workers and data
• Protection on intellectual property
• Coherent regulation, to enable gains from specialization
• Problems of multiple taxation through tariffs
• Just in time practics: trade facilitation
• Contract enforcement
• Moral hazard issues related to political risk
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TTIP AMBITIONS
Feb 2013: Recommendation of a High-Level Working Group
 „comprehensive“ agreement
 „contributing to global rules“
• Market access: going „beyond what the U.S. and the EU have
achieved in previous trade agreements“
• Investment: „highest levels of liberalization and of protection“
• Regulatory cooperation: „ambitious SPS-plus“ and „ambitious
TBT-plus“ chapters; regulatory council
After 11 rounds: high-flying ambitions not all achievable
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EVALUATING AN AGREEMENT THAT DOES NOT
YET EXIST
Ex post performance of standard CGE models disappointing:
„models drastically underestimated the impact of NAFTA on North
American trade” (Kehoe, 2005)
• Right trade model?
• How define an appropriate scenario ex ante?
 „Guess“ likely/realistic scenario?
 Use measured effects of past agreements.
Assumption: TTIP lowers trade costs by as much
as other already existing deep agreements have
(e.g., all US agreements, EU, EU-CHL, …)
ifo Approach
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GERMAN VICE CHANCELLOR SIGMAR GABRIEL
Voodoo
Economics
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LEADING STUDIES
EU COM/CEPR:
Francois, Norberg, et al., 2013.
EU Com
Economic Policy:
Egger, Francois et al., 2015
KOF 1
KOF 2
BMWi/ifo:
Felbermayr et al., 2013a
Bertelsmann/ifo:
Felbermayr et al., 2013b
Economic Policy:
Felbermayr et al., 2015
CEPII:
Fontagné, Gourdon, Jean, 2013
CESifo WP/ifo:
Aichele, Felbermayr, Heiland, 2014
… and a growing number of more studies
Source: ifo.
ifo 1
ifo 2
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DIFFERENT APPROACHES, DIFFERENT OUTCOMES
Multi Sector
Spillovers
NTMs top-down
ifo 1
ifo 2
Poland
+3.51%
+1.74%
Germany
+3.48%
+2.48%
EU
+3.94%
USA
KOF 1
EU Com
KOF 2
+2.32%
+4.89%
approx.
+1.43%
EUR 200
+0.48%
+2.27%
+2.12% per
person and
year +0.39%
+0.97%
+2.68%
China
-0.50%
-0.23%
-0.27%
+0.03%
+0.26%
ASEAN
-0.07%
-0.19%
+0.38%
+0.89%
-0.47%
World
1.58%
1.32%
Source: ifo.
+0.14%
+2.97%
+1.13%
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POLAND: DETAILED TRADE EFFECTS
Ifo 2 (Aichele et al., 2014)
220%
210%
190%
170%
120%
70%
20%
-30%
USA - EXP USA - IMP
Source: ifo2 (Aichele et al., 2014.)
-5%
-4%
GER
EU
-1%
CHN
1%
RUS
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ZOOMING IN: EFFECTS OF TTIP ON
AGGREGATES IN POLAND
bn USD, 2014
Exports
Imports
GDP
Source: ifo.
+2.9%
+2.1%
217
211
220
215
558
+1.7%
548
TTIP
2014
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POLAND: REAL GDP PER CAPITA
EFFECTS OF DIFFERENT SCENARIOS (%)
Deep + indir. spillovers
2.3
Deep + dir. spillovers
2.2
Deep + Doha
1.9
Deep
1.7
Shallow
Tariff only
Source: Aichele et al., 2014.
1.5
0.1
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EFFECTS ON LONG-RUN REAL PER CAPITA
INCOME, %
Positive net global effects
+2,1%
+2,7%
Ø Non-TTIP: -0,03%
Source: ifo 2, Aichele et al., 2014.
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MORE (?) AND BETTER JOBS
• Displacement effects (Felbermayr et al., 2013)
About 1% of labor force
1/3 across sectors, 2/3 within sectors
• Labor market effects (Bertelsmann-ifo, 2013)
+93 000 Jobs for Poland (=0.5% more jobs)
+0.69% real wage
• Better jobs (Felbermayr et al., 2015): Newly creaed jobs are
paying higher salaries
tend to be more secure
Source: ifo.
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-10%
-15%
-20%
Metals nec
Petroleum
Insurance
Textiles
Ferrous metals
Mining
Dwellings
Wood
Metal products
Mineral products
Financial…
Electricity
Communication
Paper
Recreational…
Agriculture &…
Motor vehicles
Chemicals
Transport nec
Machinery nec
Food, processed
Construction
Other services
Business…
-5%
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SECTOR EFFECTS
Initial shares (%) and rates of change (%), value added, top industries
20%
15%
10%
5%
0%
Source: ifo 2, Aichele et al., 2014.
Change through TTIP
GDP share
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SOME „THREATS“ AND WHAT THEY REQUIRE
Adjustment costs:
displacement effects
short-run in nature
social policy (European
Globalization fund)
Higher inequality
- Higher competition
threat to weak
- Market access
opportunity for strong
Crucial for ‚right‘ incentives
fiscal and social policy
Constraints on regulatory
autonomy
Reciprocal constraints on
uncoordinated, arbitrary,
discriminatory policies are the
reason for free trade agreements.
Source: ifo.
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THANK YOU
FOR YOUR ATTENTION
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BACKUP
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FREQUENT MISUNDERSTANDINGS
• Ifo assumes an overoptimistic scenario.
WRONG. The scenario is benchmarked to the average of other
agreements and is therefore, by construction, feasible.
• Because current US-EU trade is low, welfare gains from TTIP cannot
be large.
WRONG. In all known models, initial trade volumes correlate
negatively with the size of potential gains from trade.
• The size of ifo gains is implausibly high.
WRONG. Modern data-based research attributes the gains
from trade for Germany at 30-50%.
• Bilateral trade effects are inconsistent with the welfare effects.
WRONG. What matters for welfare is not the value (price x
quantity) of trade flows, but quantity and quality only.
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ADVANTAGES OF THE ifo APPROACH
1. Top-down strategy on trade costs
 No need to estimate non-tariff measures (NTMs)
 Comprehensive measure
2. Data-defined scenario for TTIP
 Capturing „actual“ direct and indirect effects
 Political feasibility
3. Easily applicable on very large country samples
 173 countries, i.e., 29,756 country pairs
4. Perfect theory-econometrics-data match
 Parameters estimated on baseline date, using
structural relationships from the model
 Confidence intervals easily computed
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MACRO- vs. MICRO-PERSPECTIVE
MACRO
• Single-sector approach
• Simple, transparent, low data requirements,
established in scientific literature
• No stance on patterns of comparative
advantage, sectoral trade patterns, and value
added networks, …
MICRO
• Multi-sector approach
• Closer to CGE tradition, high data
requirements
• Patterns of comparative advantage, sectoral
trade patterns, and value added networks are
modelled but fixed