Trade Creation and Diversion Effects of a US-EU Transatlantic Trade and Investment Partnership

(Pages: 54-62)

David Karemera1,*, Louis Whitesides1, Gerald Smalls2


1
. School of Business South Carolina State University Orangeburg, USA

2. Gerald Smalls School of Business Benedict College Columbia, USA

Abstract:

The U.S. and the E.U. are currently in negations to create one of the world’s most comprehensive free trade and investment agreements. This study empirically estimates and evaluates the potential impacts of the Transatlantic Trade and Investment Partnership commonly known as TTIP. Using U.S. import data from 1961 I to 2012IV from E.U. member countries, the study provides U.S. benefits from a TTIP. Traditional import demand models are specified and estimated for imports from each E.U. member country. The amount of trade expansion is estimated using import unit values elasticities from a dynamic import demand models. The findings show that, the elimination of all tariff and non tariff barriers, under a TTIP, the U.S. imports from E.U. member countries would increase by $1.714 billion in trade creation and $0.035 billion of trade diversion for a total trade expansion of more than 1.714 billion. The finding demonstrate that there are significant trade benefits attributable to a TTIP regime under a full implementation of the agreement and the removal of all tariffs and nontariff barriers. The amount of trade creation is greater than the amount of trade diversion in most cases.

JEL: F13, F15, F18

Keywords:

TTIP, dynamic import demand models, trade benefits, exchange rate changes.