Disunited Kingdom? Brexit, Trade and Scottish Independence

Scotland is a small, open economy that mostly trades with the rest of the UK. There is around six times more trade between Scotland and the rest of the UK than predicted by a standard gravity trade model. Scottish independence would raise trade costs within the UK by creating a new international border. We use a quantitative trade model to study the impact of changes in trade costs resulting from Brexit and independence on Scotland’s economy. We estimate that independence would be two to three times more costly for Scotland than Brexit. Moreover, rejoining the EU following independence would do little or nothing to mitigate these costs. The combination of Brexit and independence is estimated to reduce Scotland’s income per capita by between 6.3% and 8.7%.