How Deep is Your Love? A Quantitative Spatial Analysis of the Transatlantic Trade Partnership

52 Pages Posted: 9 Jan 2018

See all articles by Oliver Krebs

Oliver Krebs

University of Würzburg

Michael Pflüger

University of Passau; IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

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Date Written: February 2018

Abstract

This paper explores the quantitative effects of trade liberalization envisioned in a transatlantic trade and investment partnership (TTIP) between the United States and the European Union. We use a quantitative trade model that, in contrast to other works, features consumptive and productive uses of land and we allow for labor mobility and a spatial equilibrium. Our calibration draws mainly on the world input–output database (WIOD). The eventual outcome of the negotiations is uncertain. Tariffs in E.U.–U.S. trade are already very low, however, so that an agreement will have a major impact only by eliminating nontariff barriers. These are extremely hard to quantify. We address these uncertainties by considering a corridor of trade‐liberalization paths and by providing numerous robustness checks. Even with ambitious liberalization, real income gains within a TTIP are in the range of up to 0.46 percent for most countries. The effect on outside countries is typically negative, yet even smaller. Taking land into account scales down the welfare effects strongly. Interestingly, we find that all German counties derive unambiguous welfare gains even though the model allows for negative terms‐of‐trade effects. Our analysis also implies that in order to arrive at the same welfare gains as under a TTIP, a multilateral liberalization would have to be much more ambitious for the U.S. than for the E.U.

Suggested Citation

Krebs, Oliver and Pflüger, Michael, How Deep is Your Love? A Quantitative Spatial Analysis of the Transatlantic Trade Partnership (February 2018). Review of International Economics, Vol. 26, Issue 1, pp. 171-222, 2018, Available at SSRN: https://ssrn.com/abstract=3098556 or http://dx.doi.org/10.1111/roie.12323

Oliver Krebs (Contact Author)

University of Würzburg ( email )

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Michael Pflüger

University of Passau ( email )

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IZA Institute of Labor Economics

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German Institute for Economic Research (DIW Berlin)

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