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Modelling the long-run economic impact of leaving the European Union

Author

Listed:
  • Monique Ebell

    ()

  • Ian Hurst

    ()

  • James Warren

    ()

Abstract

We model the long-term implications of leaving the EU for the UK economy using NiGEM, the National Institute’s large scale structural global econometric model. We examine a scenario in which the UK has no free trade agreement with the EU, focusing on four key shocks: a permanent reduction in the size of the UK's export market share in EU member countries, an increase in tariffs, a permanent reduction in inward FDI flows and the repatriation of the UK’s projected net contributions to the EU budget. We calibrate the size of the shocks on a synthesis of the academic evidence. We explain how each of these four shocks is implemented in NiGEM, as well as examining the key mechanisms by which they are propagated through the model. The export market share channel is the main mechanism by which leaving the EU leads to declines in GDP and consumption relative to the long-run baseline, accounting for a long-run decline in GDP of 2.1% relative to the baseline value, out of a total projected reduction in GDP relative to the baseline of 2.7%.

Suggested Citation

  • Monique Ebell & Ian Hurst & James Warren, 2016. "Modelling the long-run economic impact of leaving the European Union," National Institute of Economic and Social Research (NIESR) Discussion Papers 462, National Institute of Economic and Social Research.
  • Handle: RePEc:nsr:niesrd:462
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    References listed on IDEAS

    as
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    Cited by:

    1. Jose Rodriguez Mora & David Comerford, 2015. "The Gains from Economic Integration," 2015 Meeting Papers 569, Society for Economic Dynamics.
    2. repec:eee:finlet:v:21:y:2017:i:c:p:132-139 is not listed on IDEAS
    3. Born, Benjamin & Müller, Gernot J. & Schularick, Moritz & Sedlacek, Petr, 2017. "The economic consequences of the Brexit Vote," LSE Research Online Documents on Economics 87174, London School of Economics and Political Science, LSE Library.
    4. Lawless, Martina & Morgenroth, Edgar, 2017. "Ireland’s international trade and transport connections," Papers WP573, Economic and Social Research Institute (ESRI).
    5. repec:eee:ecmode:v:64:y:2017:i:c:p:524-538 is not listed on IDEAS
    6. Adele Bergin & Abian Garcia-Rodriguez & Edgar L. W. Morgenroth & Donal Smith, 2017. "Modelling the Medium- to Long-Term Potential Macroeconomic Impact of Brexit on Ireland," The Economic and Social Review, Economic and Social Studies, vol. 48(3), pages 305-316.
    7. repec:zbw:rwikon:171736 is not listed on IDEAS
    8. repec:sae:niesru:v:242:y:2017:i:1:p:r24-r36 is not listed on IDEAS
    9. Swati Dhingra & Stephen Machin & Henry Overman, 2017. "Local Economic Effects of Brexit," National Institute Economic Review, National Institute of Economic and Social Research, vol. 242(1), pages 24-36, November.
    10. repec:eee:ecmode:v:69:y:2018:i:c:p:181-192 is not listed on IDEAS
    11. Joseph Steinberg, 2017. "Brexit and the Macroeconomic Impact of Trade Policy Uncertainty," 2017 Meeting Papers 216, Society for Economic Dynamics.
    12. Benjamin Born & Gernot Müller & Moritz Schularick & Petr Sedláček, 2017. "The Costs of Economic Nationalism: Evidence from the Brexit Experiment," CESifo Working Paper Series 6780, CESifo Group Munich.
    13. repec:cep:cepbxt:10 is not listed on IDEAS

    More about this item

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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