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Quantifying Brexit: From Ex Post to Ex Ante Using Structural Gravity

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  • Gabriel Felbermayr
  • Jasmin Katrin Gröschl
  • Marina Steininger
  • Gabriel J. Felbermayr

Abstract

Exploiting changes in the geography of economic integration in Europe, we quantify the economic consequences of Brexit using a quantitative general equilibrium model that captures inter- and intranational production networks. We isolate three important layers of EU integration for the UK: First, we distinguish directional treatment heterogeneity in the relation between the UK and the EU27 economies. Second, we disentangle tariff and non-tariff barriers in EU agreements affecting the UK, which show differential effects on the gains from trade. Third, next to European integration agreements, we consider fiscal transfers, which affect the terms-of-trade of countries. The analysis reveals that directional effects matter for the size and distribution of the welfare effects from Brexit. Neglecting asymmetries in EU-UK relations overestimates the costs from Brexit by up to 40%. The welfare costs of Brexit are higher in the UK than in most other EU counties. However, heterogeneity tends to attenuate overall costs while giving rise to substantial heterogeneity between EU27 members and between sectors. We introduce a scenario that could shift the bargaining power and eliminates asymmetries in the costs from Brexit as soon as the UK fully liberalizes its market.

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  • Gabriel Felbermayr & Jasmin Katrin Gröschl & Marina Steininger & Gabriel J. Felbermayr, 2018. "Quantifying Brexit: From Ex Post to Ex Ante Using Structural Gravity," CESifo Working Paper Series 7357, CESifo.
  • Handle: RePEc:ces:ceswps:_7357
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    Cited by:

    1. Hylke Vandenbussche & William Connell & Wouter Simons, 2022. "Global value chains, trade shocks and jobs: An application to Brexit," The World Economy, Wiley Blackwell, vol. 45(8), pages 2338-2369, August.
    2. Josef Baumgartner & Serguei Kaniovski & Michael Klien & Stefan Schiman, 2019. "Economic Growth Remains Low, but Stable. Medium-term Forecast of the Austrian Economy Until 2024," WIFO Bulletin, WIFO, vol. 24(12), pages 99-117, December.
    3. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik, 2019. "Update der mittelfristigen Prognose der österreichischen Wirtschaft 2019 bis 2023," WIFO Monatsberichte (monthly reports), WIFO, vol. 92(4), pages 221-230, April.
    4. Lisandra Flach & Feodora Teti & Lena Wiest & Margherita Atzei, 2020. "EU27 and the UK: Product Dependencies and the Implications of Brexit," EconPol Policy Brief 32, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Hylke Vandenbussche & William Connell & Wouter Simons, 2019. "Global Value Chains, Trade Shocks and Jobs: An Application to Brexit," CESifo Working Paper Series 7473, CESifo.
    6. Hinnerk Gnutzmann & Arevik Gnutzmann-Mkrtchyan & Tobias Korn, 2021. "Consequences of FTA Withdrawal: Evidence from "Uxit"," CESifo Working Paper Series 8859, CESifo.
    7. Bergin, Adele & Economides, Philip & Garcia-Rodriguez, Abian & Murphy, Gavin, 2019. "Ireland and Brexit: modelling the impact of deal and no-deal scenarios," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    8. N. N., 2019. "WIFO-Monatsberichte, Heft 4/2019," WIFO Monatsberichte (monthly reports), WIFO, vol. 92(4), April.
    9. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik, 2019. "Update of the Medium-term Forecast of the Austrian Economy 2019 to 2023," WIFO Bulletin, WIFO, vol. 24(6), pages 47-56, July.
    10. 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.
    11. Gabriel J. Felbermayr & Clemens Fuest & Hans Gersbach & Albrecht O. Ritschl & Marcel Thum & Martin T. Braml, 2019. "Hard Brexit ahead: breaking the deadlock," EconPol Policy Brief 12, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    12. Begg Iain, 2019. "No Longer “The Economy Stupid”: How Muddled Economics Contributed to a Chaotic Brexit," The Economists' Voice, De Gruyter, vol. 16(1), pages 1-14, December.
    13. Catherine Mathieu, 2020. "Brexit: what economic impacts does the literature anticipate?," Post-Print hal-03403036, HAL.
    14. Rolf J. Langhammer & Lisandra Flach & Feodora Teti & Lena Wiest & Margherita Atzei & Lisa Scheckenhofer & Joachim Wuermeling & Carsten Hefeker & Friedemann Kainer & Philipp Harms & Michael Kaeding, 2020. "Brexit-Finale: Das letzte Ringen um einen Deal," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(12), pages 03-27, December.
    15. Gnutzmann, Hinnerk & Gnutzmann-Mkrtchyan, Arevik & Korn, Tobias, 2021. "Consequences of FTA Withdrawal: Evidence from 'Uxit'," Hannover Economic Papers (HEP) dp-681, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    16. Marie M. Stack & Martin Bliss, 2020. "EU economic integration agreements, Brexit and trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 443-473, August.
    17. Gabriel Felbermayr, 2019. "Brexit: Eine “Hard-but-Smart”–Strategie und ihre Folgen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(04), pages 27-33, February.
    18. Josef Baumgartner & Serguei Kaniovski & Michael Klien & Stefan Schiman, 2019. "Wirtschaftswachstum weiterhin niedrig, aber stabil. Mittelfristige Prognose der österreichischen Wirtschaft bis 2024," WIFO Monatsberichte (monthly reports), WIFO, vol. 92(10), pages 737-755, October.

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    More about this item

    Keywords

    structural gravity; general equilibrium; treatment heterogeneity; Brexit;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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