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Brexit or Euro for the UK? Evidence from Panel Data

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  • Petros E. Ioannatos

    (Kettering University)

Abstract

An alternative course to Brexit for the UK is evaluated. The purpose of the study is to determine whether the UK would have been better off had, instead of Brexit, remained in the EU and joined the Eurozone. The model specification is based on the neoclassical theory of growth extended to include human capital accumulation. Counterfactual analysis in terms of the difference-in-differences methodology is applied to evaluate the effect in UK’s per capita income if the UK had joined the Eurozone when the Eurozone was formed. The dataset is a balanced panel of annual observations for fifteen countries and covers the period from 1980 to 2017. The analysis reveals that had the UK joined the Eurozone, UK’s per capita income would have been 15.48% higher on the average for the period after the formation of the Eurozone. This effect increases to 24.98% if Eurozone’s less performing economies of the southern periphery are excluded from the analysis. The study shows that Brexit is a move toward the wrong direction. The UK should have sought further integration with the EU in terms of presence in the Eurozone than pursue Brexit and leave the EU.

Suggested Citation

  • Petros E. Ioannatos, 2021. "Brexit or Euro for the UK? Evidence from Panel Data," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(1), pages 117-138, March.
  • Handle: RePEc:pal:compes:v:63:y:2021:i:1:d:10.1057_s41294-020-00119-y
    DOI: 10.1057/s41294-020-00119-y
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    More about this item

    Keywords

    Brexit; European Union; Euro; Eurozone; Neoclassical growth theory; Panel data; Natural experiment; Difference-in-differences; Fixed effects;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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