economic benefits of ttip prof. gabriel felbermayr, phd ludwig maximilians universität münchen...
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Economic Benefits of TTIP
Prof. Gabriel Felbermayr, PhDLudwig Maximilians Universität München
Warsaw School of EconomicsNov 30, 2015
Ifo Center for International Economics
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POLAND: HOW TRADE MATTERS FOR INCOMEIfo Institut 2
Income gains from moving from „autarky“ to status quo of 2008
USAGBRITAESPFRA
SWENLDDEUPOLAUTBELSVNCZE
HUNSVK
57%
Source: Costinot and Rodriguez-Clare (2014)..
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POLAND: HOW TRADE MATTERS FOR INCOMEIfo Institut 3
Income gains from moving from „autarky“ to status quo of 2008
USAGBRITAESPFRA
SWENLDDEUPOLAUTBELSVNCZE
HUNSVK
10%24%
27%31%32%
46%48%
53%57%
64%71%
80%87%
91%96%
Source: Costinot and Rodriguez-Clare (2014)..
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• WTO rules negotiated 1986-2004 to fit XXth century trade• International production sharing: new issues, requiring new rules
APPROPRIATE RULES FOR XXIst CENTURY TRADEIfo Institut 4
• 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
Which forum/platform for trade policy reform?
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TTIP AMBITIONS
Ifo Institut 5
„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
Feb 2013: Recommendation of a High-Level Working Group
After 11 rounds: high-flying ambitions not all achievable
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EVALUATING AN AGREEMENT THAT DOES NOT YET EXIST
Ifo Institut 6
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?
ifo Approach
- „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, …)
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GERMAN VICE CHANCELLOR SIGMAR GABRIELIfo Institut 7
Voodoo Economics
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Ifo Institut
LEADING STUDIES
Source: ifo.
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Bertelsmann/ifo: Felbermayr et al., 2013b
BMWi/ifo: Felbermayr et al., 2013a
EU COM/CEPR: Francois, Norberg, et al., 2013. EU Com
Economic Policy: Felbermayr et al., 2015 ifo 1
CESifo WP/ifo: Aichele, Felbermayr, Heiland, 2014 ifo 2
CEPII: Fontagné, Gourdon, Jean, 2013
Economic Policy: Egger, Francois et al., 2015 KOF 1
KOF 2
… and a growing number of more studies
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Ifo Institut
DIFFERENT APPROACHES, DIFFERENT OUTCOMES
Source: ifo.
9
Multi SectorSpilloversNTMs top-down
World 1.32% +0.14%1.58%
KOF 1ifo 2 EU Comifo 1 KOF 2
EU +2.27%+2.12% +0.48%+3.94% +2.97%
USA +0.97%+2.68% +0.39%+4.89% +1.13%
China -0.27%-0.23% +0.03%-0.50% +0.26%
ASEAN +0.38%-0.19% +0.89%-0.07% -0.47%
Germany +1.43%+2.48%+3.48% +2.32%
Poland +1.74%+3.51%
approx. EUR 200
per person and year
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Ifo Institut
POLAND: DETAILED TRADE EFFECTS
Source: ifo2 (Aichele et al., 2014.)
10
Ifo 2 (Aichele et al., 2014)
USA - EXP
USA - IMP
GER EU CHN RUS-30%
20%
70%
120%
170%
220% 210%190%
-5% -4% -1%
1%
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Ifo Institut
ZOOMING IN: EFFECTS OF TTIP ON AGGREGATES IN POLAND
Source: ifo.
11
GDP
Imports
Exports
548
215
211
558
220
217
TTIP 2014
+1.7%
+2.9%
+2.1%
bn USD, 2014
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Ifo Institut
POLAND: REAL GDP PER CAPITAEFFECTS OF DIFFERENT SCENARIOS (%)
Source: Aichele et al., 2014.
12
Tariff only
Deep
Deep + dir. spillovers
0.1
1.5
1.7
1.9
2.2
2.3
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Ifo Institut
EFFECTS ON LONG-RUN REAL PER CAPITA INCOME, %
Source: ifo 2, Aichele et al., 2014.
Positive net global effects
+2,7%+2,1%
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Ø Non-TTIP: -0,03%
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Ifo Institut
MORE (?) AND BETTER JOBS
Source: ifo.
14
• Displacement effects (Felbermayr et al., 2013)About 1% of labor force1/3 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 arepaying higher salariestend to be more secure
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Ifo Institut
SECTOR EFFECTS15
Business services nec
Construction
Machinery nec
Chemicals
Agriculture & Food
Paper
Electricity
Mineral products
Wood
Mining
Textiles
Petroleum
Electronics
Water
Air transport
Trade
-20%-15%-10%
-5%0%5%
10%15%20%25%
GDP share Change through TTIP
Initial shares (%) and rates of change (%), value added, top industries
Source: ifo 2, Aichele et al., 2014.
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Ifo Institut
SOME „THREATS“ AND WHAT THEY REQUIRE
Source: ifo.
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Adjustment costs:displacement effects
short-run in naturesocial policy (European
Globalization fund)
Higher inequality- Higher competition
threat to weak- Market access
opportunity for strong
Crucial for ‚right‘ incentivesfiscal and social policy
Constraints on regulatory autonomy
Reciprocal constraints on uncoordinated, arbitrary, discriminatory policies are the reason for free trade agreements.
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Ifo Institut
THANK YOU FOR YOUR ATTENTION
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Ifo Institut
BACKUP
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FREQUENT MISUNDERSTANDINGSIfo Institut
• 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 APPROACHIfo Institut 20
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 matchParameters estimated on baseline date, using
structural relationships from the modelConfidence intervals easily computed
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MACRO- vs. MICRO-PERSPECTIVEIfo Institut 21
• 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, …
MACRO
• 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
MICRO