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Trans-Pacific Partnership Advantages And Disadvantages

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1. INTRODUCTION Over the past three decades, the Trans-Pacific region has grown to become the main trading partner of the US. This region, made up of over 40 countries spread across Asia, Oceania, and the Americas, accounts for roughly two-thirds of the US trade volume. The fast growth in trade is due to various factors such as improved air transportation, increased use of computers in manufacturing, industrial agglomeration, and reduction in tariffs through free trade agreements in the Trans-Pacific region. The US administration has repeatedly made remarks about the economic importance of the region (e.g., “the pivot to Asia” and “America’s Pacific Century”) and is currently negotiating a regional trade agreement known as the Trans-Pacific Partnership (TPP). While being economically tied to the region is good for the US …show more content…
Our data cover sixteen major industrial sectors from nine countries in the Trans-Pacific region. We apply a factor-augmented vector autoregression (FAVAR) approach (Bernanke, Boivin, and Eliasz, 2005) to reduce the dimension of our data and to simulate the transmission of shocks from the Trans-Pacific region to the US. FAVAR has two advantages compared with traditional VAR. First, it can incorporate a broader set of information related to the unknown transmission mechanism by utilizing detailed sectoral data. As Maier and Vasishtha (2013) note, this is particularly relevant when the international transmission mechanism involves more than two countries. Second, FAVAR allows us to study the transmission of shocks in several dimensions using the same large dataset, i.e. study the effect of overall and sectoral shocks in the Trans-Pacific on US economy, both overall as well as on sectors. To identify shocks, we use both trade statistics and information in the US input-output

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