There is an interesting debate going on in Europe about the likely consequences of the TTIP (Transatlantic Trade and Investment Partnership). Much of the real debate is (or should be) about the proposed Investor-State dispute resolution (ISDS) and the desirability of regulatory harmonization when nations have different preferences about how these regulations should be designed. But there is also a fascinating numbers game going on, with alternative quantitative estimates deployed by pro- and anti-TTIP groups.
The studies used by the pro group tend to show positive, if small, GDP effects. Probably the best known among these is a study by Joseph Francois and his colleagues, according to which EU and US GDPs will rise by 0.5% and 0.4%, respectively, by 2027 (relative to the baseline scenario without TTIP). Francois et al use a standard computable general equilibrium model that assumes full employment and perfect competition (save for a few sectors where there are scale economies and monopolistic competition). Wisely, they stay away from some of the bells and whistles (e.g., induced learning and TFP gains) that have been used in the past to produce exaggerated benefits from trade agreements.
These results, however, have been challenged in a recent paper by Jeronim Capaldo. Capaldo uses a Keynesian model where output is demand-determined and finds that EU GDP would fall as a result of a decline in net exports. (But U.S. output would rise, since U.S. net exports increase.)