IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v89y2020icp72-87.html
   My bibliography  Save this article

Making sense of Brexit losses: An in-depth review of macroeconomic studies

Author

Listed:
  • Latorre, María C.
  • Olekseyuk, Zoryana
  • Yonezawa, Hidemichi
  • Robinson, Sherman

Abstract

Almost all economic assessments of Brexit conclude that there would be significant losses for both the UK and the EU. This paper examines the driving forces behind these results. We consider the strong economic relationships between the UK and EU both at the sectoral and macroeconomic levels that are at risk from Brexit. We review fifteen studies that explore various Brexit scenarios (hard and soft) and explain why their different methodologies and assumptions yield different degrees of economic damage. Our review concludes that GDP losses for the UK from a hard Brexit range from 1.6% to 7.8%, while a soft Brexit would moderate the losses by roughly half. We also find that potential UK trade agreements with third countries could partially compensate for significant Brexit losses.

Suggested Citation

  • Latorre, María C. & Olekseyuk, Zoryana & Yonezawa, Hidemichi & Robinson, Sherman, 2020. "Making sense of Brexit losses: An in-depth review of macroeconomic studies," Economic Modelling, Elsevier, vol. 89(C), pages 72-87.
  • Handle: RePEc:eee:ecmode:v:89:y:2020:i:c:p:72-87
    DOI: 10.1016/j.econmod.2019.10.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999318316304
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.econmod.2019.10.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Angel Aguiar & Badri Narayanan & Robert McDougall, 2016. "An Overview of the GTAP 9 Data Base," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 1(1), pages 181-208, June.
    2. Gabriela Ortiz Valverde & María C. Latorre, 2019. "The economic impact of potential migration policies in the UK after Brexit," Contemporary Social Science, Taylor & Francis Journals, vol. 14(2), pages 208-225, April.
    3. Latorre, María C. & Yonezawa, Hidemichi & Zhou, Jing, 2018. "A general equilibrium analysis of FDI growth in Chinese services sectors," China Economic Review, Elsevier, vol. 47(C), pages 172-188.
    4. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    5. Tarr, David G., 2013. "Putting Services and Foreign Direct Investment with Endogenous Productivity Effects in Computable General Equilibrium Models," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 303-377, Elsevier.
    6. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    7. Peter Egger & Joseph Francois & Miriam Manchin & Douglas Nelson, 2015. "Non-tariff barriers, integration and the transatlantic economy," Economic Policy, CEPR;CES;MSH, vol. 30(83), pages 539-584.
    8. Scott Bradford, 2003. "Paying the Price: Final Goods Protection in OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 24-37, February.
    9. María C. Latorre & Zoryana Olekseyuk & Hidemichi Yonezawa, 2020. "Trade and foreign direct investment‐related impacts of Brexit," The World Economy, Wiley Blackwell, vol. 43(1), pages 2-32, January.
    10. Busch, Berthold & Matthes, Jürgen, 2016. "Brexit - the economic impact: A meta-analysis," IW-Reports 10/2016, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    11. Eddy Bekkers & Hugo Rojas‐Romagosa, 2019. "The welfare effects of free trade agreements in quantitative trade models: A comparison of studies about Transatlantic Trade and Investment Partnership," The World Economy, Wiley Blackwell, vol. 42(1), pages 87-121, January.
    12. Yaghoob Jafari & David G. Tarr, 2017. "Estimates of Ad Valorem Equivalents of Barriers Against Foreign Suppliers of Services in Eleven Services Sectors and 103 Countries," The World Economy, Wiley Blackwell, vol. 40(3), pages 544-573, March.
    13. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    14. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 651-705.
    15. Marc J. Melitz & Stephen J. Redding, 2015. "New Trade Models, New Welfare Implications," American Economic Review, American Economic Association, vol. 105(3), pages 1105-1146, March.
    16. Marc J. Melitz & Stephen J. Redding, 2014. "Missing Gains from Trade?," American Economic Review, American Economic Association, vol. 104(5), pages 317-321, May.
    17. Timothy J. Kehoe & Pau S. Pujolàs & Jack Rossbach, 2017. "Quantitative Trade Models: Developments and Challenges," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 295-325, September.
    18. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    19. Patrick Minford & Yongdeng Xu, 2018. "Classical or Gravity? Which Trade Model Best Matches the UK Facts?," Open Economies Review, Springer, vol. 29(3), pages 579-611, July.
    20. Begg, Iain, 2017. "Making sense of the costs and benefits of Brexit: challenges for economists," LSE Research Online Documents on Economics 83587, London School of Economics and Political Science, LSE Library.
    21. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    22. Paola Conconi & Manuel García-Santana & Laura Puccio & Roberto Venturini, 2018. "From Final Goods to Inputs: The Protectionist Effect of Rules of Origin," American Economic Review, American Economic Association, vol. 108(8), pages 2335-2365, August.
    23. Sherman Robinson, 2006. "Macro Models and Multipliers: Leontief, Stone, Keynes, and CGE Models," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Alain Janvry & Ravi Kanbur (ed.), Poverty, Inequality and Development, chapter 0, pages 205-232, Springer.
    24. Robinson, Sherman, 1991. "Macroeconomics, financial variables, and computable general equilibrium models," World Development, Elsevier, vol. 19(11), pages 1509-1525, November.
    25. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-1051, September.
    26. María C. Latorre, 2009. "The economic analysis of multinationals and foreign direct investment: a review," Hacienda Pública Española / Review of Public Economics, IEF, vol. 191(4), pages 97-126, December.
    27. Latorre, María C. & Hosoe, Nobuhiro, 2016. "The role of Japanese FDI in China," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 226-241.
    28. Jackson, Karen & Shepotylo, Oleksandr, 2018. "Post-Brexit trade survival: Looking beyond the European Union," Economic Modelling, Elsevier, vol. 73(C), pages 317-328.
    29. Patrick Minford & Sakshi Gupta & Vo P.M. Le & Vidya Mahambare & Yongdeng Xu, 2015. "Should Britain Leave the EU?," Books, Edward Elgar Publishing, number 16679.
    30. Latorre, María C. & Yonezawa, Hidemichi, 2018. "Stopped TTIP? Its potential impact on the world and the role of neglected FDI," Economic Modelling, Elsevier, vol. 71(C), pages 99-120.
    31. repec:hrv:faseco:34299161 is not listed on IDEAS
    32. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    33. Samitas, Aristeidis & Polyzos, Stathis & Siriopoulos, Costas, 2018. "Brexit and financial stability: An agent-based simulation," Economic Modelling, Elsevier, vol. 69(C), pages 181-192.
    34. Hosoe, Nobuhiro, 2018. "Impact of border barriers, returning migrants, and trade diversion in Brexit: Firm exit and loss of variety," Economic Modelling, Elsevier, vol. 69(C), pages 193-204.
    35. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    36. Phedon A. Nicolaides & Thibault Roy, 2017. "Brexit and Trade: Between Facts and Irrelevance," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 52(2), pages 100-106, March.
    37. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    38. Iain Begg, 2017. "Making Sense of the Costs and Benefits of Brexit: Challenges for Economists," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(3), pages 299-315, September.
    39. Zoryana Olekseyuk, 2016. "Modeling of FDI in business services: Additional effects in case of Ukraine's European integration," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(7), pages 1010-1043, October.
    40. Kehoe,Timothy J. & Srinivasan,T. N. & Whalley,John (ed.), 2005. "Frontiers in Applied General Equilibrium Modeling," Cambridge Books, Cambridge University Press, number 9780521825252, December.
    41. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
    42. Alain Janvry & Ravi Kanbur (ed.), 2006. "Poverty, Inequality and Development," Economic Studies in Inequality, Social Exclusion, and Well-Being, Springer, number 978-0-387-29748-4, December.
    43. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. María C. Latorre & Zoryana Olekseyuk & Hidemichi Yonezawa, 2020. "Foreign multinationals in service sectors: A general equilibrium analysis of Brexit," The World Economy, Wiley Blackwell, vol. 43(11), pages 2830-2859, November.
    2. Zhou, Jing & Latorre, María C., 2021. "FDI in China and global production networks: Assessing the role of and impact on big world players," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1225-1240.
    3. Eloy Gil-Cordero & Francisco Javier Rondán-Cataluña & Daniel Sigüenza-Morales, 2020. "Private Label and Macroeconomic Indicators: Europe and USA," Administrative Sciences, MDPI, vol. 10(4), pages 1-17, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabriela Ortiz Valverde & Maria C. Latorre, 2020. "A computable general equilibrium analysis of Brexit: Barriers to trade and immigration restrictions," The World Economy, Wiley Blackwell, vol. 43(3), pages 705-728, March.
    2. María C. Latorre & Zoryana Olekseyuk & Hidemichi Yonezawa, 2020. "Foreign multinationals in service sectors: A general equilibrium analysis of Brexit," The World Economy, Wiley Blackwell, vol. 43(11), pages 2830-2859, November.
    3. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson, 2021. "Import liberalization as export destruction? Evidence from the United States," CEP Discussion Papers dp1779, Centre for Economic Performance, LSE.
    4. Kikkawa, Ayumu Ken & Sasahara, Akira, 2020. "Gains from trade and the sovereign bond market," European Economic Review, Elsevier, vol. 124(C).
    5. Kohler Wilhelm & Jung Benjamin, 2017. "Wie vorteilhaft ist internationaler Handel?: Ein neuer Ansatz zur Vermessung der Gewinne," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(1), pages 32-55, April.
    6. Felbermayr, Gabriel & Jung, Benjamin & Larch, Mario, 2015. "The welfare consequences of import tariffs: A quantitative perspective," Journal of International Economics, Elsevier, vol. 97(2), pages 295-309.
    7. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    8. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    9. Bas, Maria & Mayer, Thierry & Thoenig, Mathias, 2017. "From micro to macro: Demand, supply, and heterogeneity in the trade elasticity," Journal of International Economics, Elsevier, vol. 108(C), pages 1-19.
    10. Swati Dhingra & Hanwei Huang & Gianmarco Ottaviano & João Paulo Pessoa & Thomas Sampson & John Van Reenen, 2017. "The costs and benefits of leaving the EU: trade effects," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 651-705.
    11. Rodrigo Adão & Costas Arkolakis & Federico Esposito, 2019. "General Equilibrium Effects in Space: Theory and Measurement," NBER Working Papers 25544, National Bureau of Economic Research, Inc.
    12. Patrick Alexander, 2016. "Producer Heterogeneity, Value-Added, and International Trade," Staff Working Papers 16-54, Bank of Canada.
    13. Christophe Gouel & Sébastien Jean, 2021. "Love of Variety and Gains from Trade," CESifo Working Paper Series 9460, CESifo.
    14. Patrick Bisciari, 2019. "A survey of the long-term impact of Brexit on the UK and the EU27 economies," Working Paper Research 366, National Bank of Belgium.
    15. repec:hal:spmain:info:hdl:2441/nki2gcedn93280ns6fslbhdnm is not listed on IDEAS
    16. Esposito, Federico, 2020. "Demand Risk and Diversification through International Trade," MPRA Paper 100865, University Library of Munich, Germany.
    17. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    18. Krolikowski, Pawel M. & McCallum, Andrew H., 2021. "Goods-market frictions and international trade," Journal of International Economics, Elsevier, vol. 129(C).
    19. Baier, Scott L. & Yotov, Yoto V. & Zylkin, Thomas, 2019. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration," Journal of International Economics, Elsevier, vol. 116(C), pages 206-226.
    20. Esposito, Federico, 2019. "Demand Risk and Diversification through Trade," MPRA Paper 99875, University Library of Munich, Germany.
    21. Felbermayr, Gabriel & Gröschl, Jasmin & Heiland, Inga, 2022. "Complex Europe: Quantifying the cost of disintegration," Journal of International Economics, Elsevier, vol. 138(C).

    More about this item

    Keywords

    Economic methodology; CGE models; Economic simulation; Foreign trade; Migration; Multinationals;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:89:y:2020:i:c:p:72-87. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.