Ludwig Maximilians University Munich, Ifo Institute and CESifo; University of Bayreuth; University of Bayreuth, CESifo, GEP and Ifo Institute; Ifo Institute and CESifo
1 We thank discussants, seminar participants at the 60th Panel Meeting of Economic Policy in October 2014 in Rome for comments and suggestions as well as the editors, and two anonymous referees for their invaluable advice. We are also grateful to Sebastian Benz, Kerem Coşar, Anne-Célia Disdier, Heribert Dieter, Lionel Fontagné, Joseph Francois, Len-Kuo Hu, Sébastien Jean, Sybille Lehwald, Jacques Pelkmans, Laura Márquez Ramos, Uli Schoof, and seminar participants at Brussels, Berlin, Fudan, Göttingen, Heidelberg, Munich, Ningbo, Taipeh, and Vienna for helpful comments. An abridged non-technical summary of a previous working paper version of this paper has been published as Felbermayr et al . (2014), “TTIP: Small Gains, High Risks?”. All remaining errors are ours.
The Managing Editor in charge of this paper was Thorsten Beck.
Gabriel Felbermayr, Benedikt Heid, Mario Larch, Erdal Yalcin; Macroeconomic potentials of transatlantic free trade: a high resolution perspective for Europe and the world. Econ Policy 2015; 30 (83): 491-537. doi: 10.1093/epolic/eiv009
Critics of the proposed Transatlantic Trade and Investment Partnership (TTIP) dismiss its potential welfare gains as small compared with its risks. We contribute to this debate by investigating the driving forces behind the magnitudes of the estimated welfare gains using the structurally estimated general equilibrium trade model by Egger and Larch (2011) for 173 countries. In our baseline scenario, the TTIP amounts to a reduction of ad valorem trade costs across the Atlantic between 16 and 26 percentage points. We find that the TTIP could yield substantial gains for the EU (3.9%), the United States (4.9%), and the world (+1.6%). While welfare gains are heterogeneous within the EU, the TTIP does not systematically favour richer or more central member states. The majority of third countries would be negatively affected (0.9% on average). We identify as key drivers for the magnitudes of the welfare effects different assumptions about trade cost specifications, about the assumed trade cost reducing potential of the TTIP, about different levels of aggregation, and about the regulatory spill-overs of the TTIP on third countries. Our insights on the drivers for the welfare effects help to understand differences across current evaluations of the TTIP.