For the past half century, trade has made substantial contributions to development in many economies, making a vibrant trading system a global priority. Yet world trade growth is now decelerating, while the complex challenges of today’s trading environment and divergences across WTO members have stymied progress on further liberalization at the WTO. In this vacuum, ambitious mega-regional trade agreements (MRTAs) are now emerging as a possible answer to the global stalemate, with the Asia-Pacific region serving as their main incubator. The proposed MRTAs are bound to affect all developing economies, even those not participating in them; they will create and, to a lesser extent, divert trade, and will establish new rules for deeper integration. Signed in February 2016, the TPP is the first of these MRTAs in the Asia-Pacific region to be concluded (though not yet ratified). This study, undertaken jointly with Peter Petri of Brandeis University, analyzes the emergence of Asia Pacific MRTAs, and conducts CGE simulations to evaluate the potential effects of the TPP. Results suggest that the TPP will increase global incomes significantly, driven most importantly by liberalization of non-tariff barriers; the biggest winners are developing partner economies (especially Viet Nam and Malaysia); some non-members may be adversely affected—particularly China and Thailand—but the trade diversion effects will be small. In developing economies integration could draw significant numbers of workers from informal into formal employment. In addition, unskilled labor gains the most in developing economies (with the exception of Peru, in which gains to factors are equally distributed). Thus, with active public policies that support adjustment and poverty reduction, the TPP would augment the earnings of low-income individuals.
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