Trade cost estimates of the Transatlantic Trade and Investment Partnership

This research is written in the context of the upcoming free trade agreement (FTA) between the US and Europe called the Transatlantic Trade and Investment Partner- ship (TTIP). The aim of this paper is to obtain the trade elasticities with respect to trade costs and to estimate the non-tari barrier (NTB) reductions as a consequence of the upcoming FTA. The gravity equation, an often used tool in the research regard- ing international trade, is used to obtain those trade elasticities and NTB reductions. Four dierent theoretical gravity equations are described in the theoretical framework of this paper that have dierent trade determinants and therefore give a dierent in- terpretation of the trade elasticity. The main nding of this paper is that the trade elasticities with respect to trade costs range from -10.3 to -0.54 using the simple average tari and from -13.6 to 2.7 using the trade-weighted average tari. Furthermore, the ad valorem equivalents (AVEs) of NTB reductions range from 4.48 to 33.77 using the simple average tari margin and from 3.87 to 28.7 using the trade-weighted average tari margin. There is evidence for large sectoral dierences in trade elasticities and NTB reductions. These trade elasticities and AVEs of NTB reductions can be used in a Computed General Equilibrium (CGE) model to predict the consequences for welfare, labor and economic growth, among others, for the Dutch economy.