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A short- and long-term general equilibrium analysis of the impact of Brexit

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  • Ortiz Valverde, Gabriela
  • Latorre, María C.

Abstract

This paper provides an impact assessment of Brexit and the role of foreign direct investment (FDI) in the United Kingdom (UK). We use both, a static and a dynamic Computable General Equilibrium (CGE) model, which are the Standard Global Trade Analysis Project (GTAP) and the Recursive Dynamic GTAP model, respectively. We offer a comparative analysis, which identifies the role of FDI and barriers to trade in the overall impact of Brexit. Regarding barriers to trade, we study three potential scenarios: soft Brexit, Johnson’s Brexit and hard Brexit. We extend our previous research including the simulation of the new agreement negotiated by Boris Johnson, which would introduce more barriers to trade and FDI than the one struck by Theresa May. To the best of our knowledge there are not many assessments which simulate the new agreement. With respect to FDI, we simulate several levels of FDI reductions. This CGE approach allows to estimate the impact on GDP, welfare, wages, and capital remuneration, together with the evolution of aggregate and sectoral output, exports and imports, for 21 sectors and five regions: UK, European Union (EU), the United States of America (USA), China, and the Rest of the World (ROW). Keywords: Foreign Direct Investment, FDI, Multinationals, Non-tariff Barriers, NTBs, European Union, United Kingdom, Recursive Dynamics. JEL codes: C68, F15, F23, F62

Suggested Citation

  • Ortiz Valverde, Gabriela & Latorre, María C., 2020. "A short- and long-term general equilibrium analysis of the impact of Brexit," Conference papers 333192, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333192
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    1. Holland, Dawn & Barrell, Ray & Fic, Tatiana & Hurst, Ian & Liadze, Iana & Orazgani, Ali & Pillonca, Vladimir, 2009. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 208, pages 9-16, April.
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    4. Nigel Pain & Paul Ashworth & Dawn Holland & Florence Hubert & Dirk Willem te Velde, 2000. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 172(1), pages 33-61, April.
    5. Harrison, Glenn W. & Jones, Richard & Kimbell, Larry J. & Wigle, Randal, 1993. "How robust is applied general equilibrium analysis?," Journal of Policy Modeling, Elsevier, vol. 15(1), pages 99-115, February.
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    More about this item

    Keywords

    Political Economy;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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