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The costs and benefits of leaving the EU: trade effects

Author

Listed:
  • Swati Dhingra
  • Hanwei Huang
  • Gianmarco Ottaviano
  • João Paulo Pessoa
  • Thomas Sampson
  • John Van Reenen

Abstract

SUMMARYSampson and John Van Reenen?>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.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:ecpoli:v:32:y:2017:i:92:p:651-705.
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    File URL: http://hdl.handle.net/10.1093/epolic/eix015
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    More about this item

    Keywords

    trade; Brexit; general equilibrium;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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