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Measuring The Permanent Costs of Brexit

Author

Listed:
  • Hugo Erken
  • Raphie Hayat
  • Carlijn Prins
  • Marijn Heijmerikx
  • Inge de Vreede

Abstract

We analyse the costs of Brexit. The results show that by 2030 a hard Brexit would reduce cumulative GDP growth by 18 percentage points compared to a situation where the UK continued its EU membership. The economic damage in our FTA and soft Brexit scenarios is less severe than in our hard Brexit scenario, although it will still cost the UK economy roughly 12.5 percentage points and 10 percentage points of cumulative GDP growth by 2030, respectively. We find much larger negative effects than most existing studies that use macroeconometric modelling to assess the effects of Brexit. This is due to two reasons. First, we use an improved tariff version of the macroeconometric model NiGEM, which enables us better to assess the negative impact of cost-push inflation resulting from imposed trade barriers. Second, we estimate a new productivity model for the UK, which allows us to gauge adequately the negative UK-specific effects on productivity caused by Brexit.

Suggested Citation

  • Hugo Erken & Raphie Hayat & Carlijn Prins & Marijn Heijmerikx & Inge de Vreede, 2018. "Measuring The Permanent Costs of Brexit," National Institute Economic Review, National Institute of Economic and Social Research, vol. 244(1), pages 46-55, May.
    • Handle: RePEc:sae:niesru:v:244:y:2018:i:1:p:r46-r55
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    Citations

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    Cited by:

    1. Crafts, Nicholas, 2019. "The Fall in UK Potential Output due to the Financial Crisis: a Much Bigger Estimate," CEPR Discussion Papers 13428, C.E.P.R. Discussion Papers.
    2. Nicholas Crafts, 2019. "The Fall in Potential Output due to the Financial Crisis: A Much Bigger Estimate for the UK," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(4), pages 625-635, December.

    More about this item

    Keywords

    Brexit; NiGEM; total factor productivity; United Kingdom; labour productivity; trade;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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