Modelling the impacts of trade on employment and development: A structuralist CGE-model for the analysis of TTIP and other trade agreements

In recent years, a number of studies have been put forth to assess the potential economic effects of the EU-US trade agreement - the Transatlantic Trade and Investment Partnership (TTIP). Most studies report gains for the TTIP-member states. However, the commonly applied CGE models contain questionable assumptions such as full employment. In this report, we present a structuralist CGE-model for the assessment of TTIP with fundamentally different key assumptions with regard to the determination of output, income and employment. These distinct closures are applied within the standard trade liberalization setting including the reduction of tariffs and non-tariff barriers. Importantly, the model delivers results with regard to (i) macroeconomic effects including employment and wages, (ii) sectoral (20 Sectors) and (iii) regional (11 countries/regions) effects. Even though small but positive income effects are reported, the diverging results among TTIP-members, negative effects for real wages for low skill labor and the rest of the world, in particular developing countries, should be highlighted. An extensive sensitivity analysis confirms potential risks associated with TTIP.