More on the controversy about the economic effects of the Trans-Pacific Partnership Agreement (TPPA). This commentary by guest blogger Jomo Kwame Sundaram continues the discussion begun by Jeronim Capaldo and Alex Izurieta here. The three are co-authors of the Global Development and Environment Institute (GDAE) working paper, “Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement,” available here. –Eds.
Are the Peterson Institute Studies Reliable Guides to Likely TPP effects?
Jomo Kwame Sundaram
Professor Robert Lawrence poses three seemingly reasonable questions to conclude that his colleagues’ trade policy work on the likely consequences of the Trans-Pacific Partnership Agreement (TPPA) is superior to our macroeconomic policy exercise using the United Nations Global Policy Model (GPM). In doing so, he misrepresents the nature of our work as well as the significance of the differences, thus confusing the issues.
Our study does not purport to be a comprehensive analysis of the TPPA and its effects, as his colleagues’ studies claim to be. We have not used the GPM as a trade policy model to substitute for trade projections made by Professor Lawrence’s colleagues. In fact, despite our reservations, we accepted the earlier projections by the Peterson Institute for International Economics (PIIE) on the likely trade outcomes of tariff reductions as our starting point, but proceeded to show that their claims about the TPP’s likely growth and employment effects were problematic and did not necessarily follow.
Our model incorporates macro-financial dynamics as well as distribution and employment variations, which more realistically represent the world economy rather than their self-equilibrating, full employment model. But in line with the limited scope and purpose of our paper, we do not claim to have provided reliable and definitive projections of the TPP’s likely effects.
As is well known, the United States Department of Agriculture’s Economic Research Service (USDA-ERS) computable general equilibrium (CGE) model projections of the TPP are far more pessimistic than the PIIE’s. If the differences between our results and the findings of the PIIE were simply due to using different models, then one would have to explain how the USDA-ERS model came to its very different conclusions. Clearly, CGE models can come to very different findings using different, in this case, more realistic specifications.
Crucially, we noted that by assuming full employment, the PIIE model assumes away important macroeconomic implications of the TPP. We show that using the PIIE trade projections, but with more realistic modelling, assumptions and specifications, the TPP would result in more modest growth, net job losses, greater pressure on wages and a declining labour share of income. These effects may well be eventually offset by other developments having nothing to do with the TPP, but they nevertheless remain the likely effects of the TPP.