The costs and benefits of leaving the EU : trade effects

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

91 Scopus Citations
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Author(s)

  • Swati Dhingra
  • Gianmarco Ottaviano
  • João Paulo Pessoa
  • Thomas Sampson
  • John Van Reenen

Detail(s)

Original languageEnglish
Pages (from-to)651-705
Journal / PublicationEconomic Policy
Volume32
Issue number92
Online published12 Oct 2017
Publication statusPublished - Oct 2017
Externally publishedYes

Abstract

This paper estimates the welfare effects of Brexit in the medium to long run, focusing on trade and fiscal transfers. We use a standard quantitative general equilibrium trade model with many countries and sectors and trade in intermediates. We simulate a range of counterfactuals reflecting alternative options for European Union (EU)–United Kingdom (UK) relations following Brexit. Welfare losses for the average UK household are 1.3% if the UK remains in the EU’s Single Market like Norway (a ‘soft Brexit’). Losses rise to 2.7% if the UK trades with the EU under World Trade Organization rules (a ‘hard Brexit’). A reduced-form approach that captures the dynamic effects of Brexit on productivity more than triples these losses and implies a decline in average income per capita of between 6.3% and 9.4%, partly via falls in foreign investment. The negative effects of Brexit are widely shared across the entire income distribution and are unlikely to be offset from new trade deals.

Citation Format(s)

The costs and benefits of leaving the EU : trade effects. / Dhingra, Swati; Huang, Hanwei; Ottaviano, Gianmarco; Pessoa, João Paulo; Sampson, Thomas; Van Reenen, John.

In: Economic Policy, Vol. 32, No. 92, 10.2017, p. 651-705.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review