THE ECONOMICS OF TTIP

Prof. Gabriel Felbermayr, PhD Ludwig Maximilians Universität München

OeNB

Wien, June 14, 2016

Ifo Center for International Economics

TTIP AGENDA Market access • Tariffs, quota, services, public procurement, … • Numerous exceptions Regulatory cooperation • Unnecessary, discriminatory non-tariff barriers • Sectoral heterogeneity Investment • Access regulation • Protection: ISDS Rules Competition, labor law, data, environment, SMEs, IPR, corruption (?)

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MODELS

? ? ?

CONSENSUS

TTIP EFFECTS: HOW CAPTURED G. Felbermayr 3

Effect often captured

Effect sometimes or partly captured

Effect generally not captured

TTIP

Tariff reductions

(intensive margin)

NTB reductions

(intensive margin)

Extensive margin

Investment

Dynamic productivity

gains

Follow-up trade

liberalization

Tech & knowledge

transfer

Increased domestic market

efficiency

Synergies with other structural reforms

Source: Henn, 2016 (IMF Reference Note).

HOW OLD SCHOOL MODELS FAIL G. Felbermayr 4

Source: Kehoe (2003, 2005). Similar for Europe: Corcos et al. (2012)

NAFTA’s Impact on Openness (percent change in trade/GDP ratios)

TTIP: THE TRAGEDY OF NUMBERS G. Felbermayr 5

The profession has failed to convey its message

Forecast • In an ex ante analysis? • NTBs: bottom-up, narrow • Small, but realistic?

Potential • NTBs: top-down, broad • TTIP not comparable? • Large, but unrealistic?

Micro • RoOs not captured • No extensive margin • Realistic ?

Macro • RoOs: maximum strength • Extensive margin • Unrealistic?

Calibrated • Parameters from various

sources • Scenario: expert-driven

Estimated • Full integration of theory,

estimation, and scenario definition

CEPR ifo-BM, KOF, …

ESTIMATES OF TTIP‘s IMPACT G. Felbermayr 6

Source: Felbermayr, 2016.

% of baseline real GDP/capita

CEPR / WTI

USA 0.4 EU 0.5 Austria 0.4 Germany 0.6 France 0.3 UK 0.4

Non-TTIP 0.1 Indonesia 0.9 China 0.0

World 0.3

ESTIMATES OF TTIP‘s IMPACT G. Felbermayr 7

Source: Felbermayr, 2016.

% of baseline real GDP/capita

CEPR / WTI Aichele et al. (2014)

USA 0.4 2.7 EU 0.5 2.1 Austria 0.4 2.4 Germany 0.6 2.6 France 0.3 2.2 UK 0.4 2.3

Non-TTIP 0.1 0.4 Indonesia 0.9 -0.1 China 0.0 -0.3

World 0.3 1.3

ESTIMATES OF TTIP‘s IMPACT G. Felbermayr 8

Source: Felbermayr, 2016.

% of baseline real GDP/capita

CEPR / WTI Aichele et al. (2014)

Egger et al. (2015)

USA 0.4 2.7 1.0 EU 0.5 2.1 2.3 Austria 0.4 2.4 Germany 0.6 2.6 1.4 France 0.3 2.2 1.3 UK 0.4 2.3 1.8

Non-TTIP 0.1 0.4 Indonesia 0.9 -0.1 0.4 China 0.0 -0.3 -0.3

World 0.3 1.3

ESTIMATES OF TTIP‘s IMPACT G. Felbermayr 9

Source: Felbermayr, 2016.

% of baseline real GDP/capita

CEPR / WTI Aichele et al. (2014)

Egger et al. (2015)

ifo-BM / Felbermayr et al. (2015)

USA 0.4 2.7 1.0 4.9 EU 0.5 2.1 2.3 3.9 Austria 0.4 2.4 2.8 Germany 0.6 2.6 1.4 3.5 France 0.3 2.2 1.3 3.5 UK 0.4 2.3 1.8 5.1

Non-TTIP 0.1 0.4 -0.9 Indonesia 0.9 -0.1 0.4 -0.1 China 0.0 -0.3 -0.3 -0.5

World 0.3 1.3 1.6

Source: ifo 2, Aichele et al., 2014.

Positive net global effects

+2,7% +2,1%

Ø Non-TTIP: -0,03%

G. Felbermayr 10

ESTIMATES OF TTIP‘s IMPACT

G. Felbermayr 11

GROWTH VERSUS LEVEL EFFECTS How DIHK and BDI got the interpretation wrong

Source: WTI (2016).

Real per capita income CPI

0.6 0.3

G. Felbermayr 12

WHO UNDERSTANDS THE NUMERAIRE CGE Models: only relative prices matter. TTIP not inflationary!

Ifo Institut

• Ifo assumes an overoptimistic scenario. WRONG. The scenario is benchmarked to the average of other agreements and describes, by construction, feasible potentials. • Because current US-EU trade is low, welfare gains from TTIP cannot

be large. WRONG. In all trade 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 alone quantity and quality.

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MORE MISUNDERSTANDINGS

Ifo Institut 14

AND WHAT THE DISPUTE PRODUCED …

Source: November 18, 2014 by Russia Today