Stopped TTIP? Its potential impact on the world and the role of neglected FDI

• Published in: Economic modelling 2018-04, Vol.71, p.99-120
• Main Authors: Latorre, María C., Yonezawa, Hidemichi
• Format: Article
• Language: English
• Subjects: CGE; Computable general equilibrium; Foreign direct investment; Monopolistic competition; Multinationals; Trade agreements
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2017.12.006

The Transatlantic Trade and Investment Partnership (TTIP) has been one of the most heavily debated issues in international economics over the last few years. We analyze its potential impact on the world, including both insiders and outsiders of the agreement, using a Computable General Equilibrium (CGE) model with Foreign Direct Investment (FDI) under imperfect competition. In our simulation, TTIP consists of reductions of tariffs, non-tariff barriers and barriers to FDI. Our results show that the FDI component, which has often been neglected in previous studies, would contribute to nearly half of the overall impact of TTIP for the US and nearly one third for the EU. Insiders would heavily benefit from TTIP, whereas, it would be slightly negative for outsiders (Middle East, Sub-Saharan Africa, Latin America, Southeast Asia and Other Advanced Countries), except for the big Asian economies (China, Japan and India), which would remain unaffected. The slightly negative effects would turn into positive with an “inclusive TTIP” (i.e., one avoiding third country discriminating rules and standards). An inclusive TTIP would benefit both insiders, who would gain more than with the standard TTIP, and outsiders, who would be better off than without the TTIP. Welfare, GDP, wages, as well as aggregate imports and exports of the world economy would clearly increase following either a modest or ambitious TTIP agreement. Our results suggest that policy makers should resume TTIP negotiations and try to strike an inclusive and ambitious deal. •We introduce multinationals and FDI in a general equilibrium analysis of TTIP•In the US FDI would contribute to nearly half of the total positive impact of TTIP•In the EU FDI reform would explain nearly one third of its beneficial effects•TTIP would be good for the world but it could slightly harm some outsiders•An “inclusive TTIP” would benefit both insiders and outsiders