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The Economic Impact of Brexit: Evidence from Modelling Free Trade Agreements

Author

Listed:
  • Ansgar Belke

    () (University of Duisburg-Essen
    Institute for the Study of Labor (IZA))

  • Daniel Gros

    (Centre for European Policy Studies (CEPS))

Abstract

Abstract This paper assesses the economic implications of the United Kingdom (UK) leaving the European Union (EU). The basic data on trade in goods and services and investment between the two parties suggest that the cost of “Brexit” could be substantial. Trade between the UK and the EU-27 is large and of a similar order of magnitude as transatlantic trade (between the EU and the U.S.). The precise nature of the (hopefully free) trade agreement UK-EU-27 is still being negotiated. All available studies concur that a significant disruption of trade links will impose economic costs on both sides. However, the EU-27 would bear only a disproportionally small share of the total cost, not just because it is about five times larger than the UK in economic terms, but also for fundamental reasons such as greater market power of its enterprises. Other studies on different free trade arrangements confirm the general proposition that the smaller party has more to gain from eliminating trade barriers (and more to lose from imposing them). This implies that the EU will have a stronger negotiating position.

Suggested Citation

  • Ansgar Belke & Daniel Gros, 2017. "The Economic Impact of Brexit: Evidence from Modelling Free Trade Agreements," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 45(3), pages 317-331, September.
  • Handle: RePEc:kap:atlecj:v:45:y:2017:i:3:d:10.1007_s11293-017-9553-7
    DOI: 10.1007/s11293-017-9553-7
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    References listed on IDEAS

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    1. Fritz Breuss, 2006. "Austria and Switzerland – Experiences with and without EU Membership," Austrian Economic Quarterly, WIFO, vol. 11(1), pages 13-39, February.
    2. Bas Straathof & Gert Jan Linders & Arjan Lejour & Jan Möhlmann, 2008. "The internal market and the Dutch economy: implications for trade and economic growth," CPB Document 168, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Roy, Amrita & Mathur, Somesh K., 2016. "Brexit and India–EU Free Trade Agreement," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 31(4), pages 740-773.
    4. Sebastian Benz & Erdal Yalcin, 2013. "Ökonomische Effekte eines Freihandelsabkommens zwischen Japan und der EU," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(14), pages 35-40, July.
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    More about this item

    Keywords

    Brexit; European Union; Free trade agreements; Trade in goods and services; FDI;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • 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

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