1. The Real Economic Impact of the EU-Japan EPA ? d Bruegel, Oct 3, 2018
Gabriel Felbermayr 1
The Real Economic Impact of the EU-Japan EPA ? d Bruegel, Oct 3, 2018

2. Gabriel Felbermayr https://ies.keio.ac.jp/upload/pdf/en/DP2018-015.pdf

3. AGENDA Quantifying the EU-Japan EPA: Caveats
Gabriel Felbermayr 3 3 3
AGENDA
Quantifying the EU-Japan EPA: Caveats
Lessons from the EU-Korea FTA
Results from the ifo-Keio study

4. THE „REAL“ ECONOMIC IMPACT OF FTAs
Gabriel Felbermayr 4
THE „REAL“ ECONOMIC IMPACT OF FTAs
Ex post evaluation of trade agreements: better methods and data
Ex ante assessments: advances in quantitative trade models: better integration of theory, data, and estimation. BUT:
Modeling choices and quality of data matter greatly
Scenario uncertainty: assumptions needed; ceteris paribus nature of exercises
No dynamics: underestimation of long-run real gains, but disregard of short-run adjustment costs
Neglect of MNEs may overestimate gains of EU-JPN EPA
Complex and potentially surprising effects through interactions with „distortions“

5. ONE CERTAINTY: EU-JPN EPA IS BIG
Gabriel Felbermayr 5
ONE CERTAINTY: EU-JPN EPA IS BIG

6. AGENDA Quantifying the EU-Japan EPA: Caveats
Gabriel Felbermayr 6 6 6
AGENDA
Quantifying the EU-Japan EPA: Caveats
Lessons from the EU-Korea FTA
Results from the ifo-Keio study

7. EU TRADE: JAPAN, KOREA, THE WORLD
Gabriel Felbermayr 7
EU TRADE: JAPAN, KOREA, THE WORLD
2011Q1=100

8. Gabriel Felbermayr 8
EU-KOREA LESSONS Findings from an ifo Evaluation for EU Commission (
Source:

9. Gabriel Felbermayr 9
EU-KOREA LESSONS Findings from an ifo Evaluation for EU Commission (
Source:

10. Gabriel Felbermayr 10
EU-KOREA LESSONS Findings from an ifo Evaluation for EU Commission (
Inception of EU-Korea FTA triggers substantial trade growth from onwards
Initial asymmetries have been quickly overcome
Strong horizontal effects; strong implicit effects
Trade diversion is relatively low
A success story, to be replicated by the EU-Japan EPA?
Source:

11. AGENDA Quantifying the EU-Japan EPA: Caveats
Gabriel Felbermayr 11 11 11
AGENDA
Quantifying the EU-Japan EPA: Caveats
Lessons from the EU-Korea FTA
Results from the ifo-Keio study

12. SIMULATION OF LIKELY EFFECTS
Gabriel Felbermayr 12
SIMULATION OF LIKELY EFFECTS
Based on ifo trade model (Aichele et al., 2016)
Setup
Scenarios
56 sectors, 130 countries (GTAP data, updated to 2018)
New generation general equilibrium trade model
Careful modeling of value added networks
Very good fit of status quo data
S I: Tariffs + NTB cost reduction as in EU-KOR FTA
S II: S I under Brexit (Chequers)
S III: S I under CPTPP
[S IV: S I plus FTAs with US]
[S V: S I plus US isolationism]
Source: Aichele et al., 2016;

13. EFFECTS ON JAPAN‘S EXPORTS
Gabriel Felbermayr 13
EFFECTS ON JAPAN‘S EXPORTS
Source: Felbermayr et al., 2018.

14. EFFECTS ON JAPAN‘S IMPORTS
Gabriel Felbermayr 14
EFFECTS ON JAPAN‘S IMPORTS
Source: Felbermayr et al., 2018.

15. LIKELY MACROECONOMIC EFFECTS
Gabriel Felbermayr 15
LIKELY MACROECONOMIC EFFECTS
Long-run GDP gains in bn. US-Dollars and % of 2014 baseline %
Source: Felbermayr et al., 2018.

16. LIKELY MACROECONOMIC EFFECTS
Gabriel Felbermayr 16
LIKELY MACROECONOMIC EFFECTS
Long-run GDP gains in % of 2014 baseline, Scenario II (conservative)
Source: Felbermayr et al., 2018.

17. EFFECTS ON VALUE ADDED, bn USD
Gabriel Felbermayr 17
EFFECTS ON VALUE ADDED, bn USD
Source: Felbermayr et al., 2018.

18. SUMMARY OF SIMULATION RESULTS
Gabriel Felbermayr 18
SUMMARY OF SIMULATION RESULTS F
All EU memberstates win, third party losses are minor
Sectoral gains and losses follow structure of comparative advantage and of initial protection
Additionally …
Possible CO2-savings through trade diversion away from CO2- intensive producers (China) despite additional transportation
No systematic bias against low-wage workers in EU and Japan
To be watched: effects of US trade policy on gains from EU-Japan EPA

19. The Real Economic Impact of the EU-Japan EPA ? d Bruegel, Oct 3, 2018
Gabriel Felbermayr 19
The Real Economic Impact of the EU-Japan EPA ? d Bruegel, Oct 3, 2018

20. TWO DIFFERENT BUSINESS MODELS
Gabriel Felbermayr 20
TWO DIFFERENT BUSINESS MODELS
Investment vs. exports-driven models; current account (bn. US-Dollar)
Japan
Germany
400
300
200
100
-100
-200
400
300
200
100
-100
-200
Current account
Current account
Net trade
Income
Income
Net trade
Source: Felbermayr et al., 2017, Figure 3.

21. TWO DIFFERENT BUSINESS MODELS
Gabriel Felbermayr 21
TWO DIFFERENT BUSINESS MODELS )
Simple average MFN tariffs (%)
Japanese companies rely more strongly on FDI into Europe than on exports to Europe
EU firms rely more strongly on exporting
This reflects slight asymmetries in trade barriers
Lower trade barriers through the EU-Japan EPA will not undo this grown patterns
Source: Felbermayr et al., 2017, Figure 13.