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The impact of Brexit on trade patterns and industry location: a NEG analysis

Author

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  • Commendatore, Pasquale
  • Kubin, Ingrid
  • Sushko, Iryna

Abstract

We explore the effects of Brexit on trade patterns and on the spatial distribution of industry between the United Kingdom and the European Union and within the EU. Our study adopts a new economic geography (NEG) perspective developing a linear model with three regions, the UK and two separated regions composing the EU. The 3-region framework and linear demands allow for different trade patterns. Two possible ante-Brexit situations are possible, depending on the interplay between local market size, local competition and trade costs: industrial agglomeration or dispersion. Considering a soft and a hard Brexit scenario, the ante-Brexit situation is altered substantially, depending on which scenario prevails. UK firms could move to the larger EU market, even in the peripheral region, reacting to the higher trade barriers, relocation representing a substitute for trade. Alternatively, some EU firms could move in the more isolated UK market finding shelter from the competition inside the EU. We also consider the post-Brexit scenario of deeper EU integration, leading to a weakening of trade links between the EU and the UK. Our analysis also reveals a highly complex bifurcation sequence leading to many instances of multistability, intricate basins of attraction and cyclical and chaotic dynamics.

Suggested Citation

  • Commendatore, Pasquale & Kubin, Ingrid & Sushko, Iryna, 2018. "The impact of Brexit on trade patterns and industry location: a NEG analysis," Department of Economics Working Paper Series 267, WU Vienna University of Economics and Business.
  • Handle: RePEc:wiw:wus005:6450
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    Cited by:

    1. Raffaele Giammetti, 2019. "Tariffs, Domestic Import Substitution and Trade Diversion in Input-Output Production Networks: how to deal with Brexit," Mo.Fi.R. Working Papers 152, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    2. Kornienko, Natalia (Корниенко, Наталья) & Postnikova, N (Постникова, Н.) & Velikova, Elisa (Великова, Елиса) & Gulyaeva, S (Гуляева, С.), 2015. "Tax Competition between Countries and Associations of Countries in the Former Soviet Union [Налоговая Конкуренция Между Странами И Объединениями Стран На Постсоветском Пространстве]," Published Papers mn15, Russian Presidential Academy of National Economy and Public Administration.

    More about this item

    Keywords

    capacity constraint; depreciation constraint; nonnegativity constraint; piecewise smooth system; border collision bifurcation; centre bifurcation;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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