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The economic impact of Brexit: Evidence from modelling free trade agreements

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  • Belke, Ansgar
  • Gros, Daniel

Abstract

This paper assesses the economic implications of the United Kingdom leaving the European Union. The basic data on trade in goods and services and investment between the two parties suggest that cost of 'Brexit' could be substantial. Trade between the UK and the EU27 is large and of a similar order of magnitude as transatlantic trade (between the EU and the US). The precise nature of the (hopefully free) trade agreement UK-EU-27 is still being negotiated. But all available studies concur that a significant disruption of trade links will impose economic costs on both sides. However, the EU27 would bear only a disproportionally small share of the total cost - not just because it is about five times larger than the UK in economic terms but also for fundamental reasons such as greater market power of its enterprises. Other studies on different free trade arrangements confirm the general proposition that the smaller party has more to gain from eliminating trade barriers (and to lose from imposing them). This implies that the EU will have the stronger negotiating position.

Suggested Citation

  • Belke, Ansgar & Gros, Daniel, 2017. "The economic impact of Brexit: Evidence from modelling free trade agreements," Ruhr Economic Papers 700, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  • Handle: RePEc:zbw:rwirep:700
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    References listed on IDEAS

    as
    1. Fritz Breuss, 2006. "Austria and Switzerland – Experiences with and without EU Membership," Austrian Economic Quarterly, WIFO, vol. 11(1), pages 13-39, February.
    2. Bas Straathof & Gert Jan Linders & Arjan Lejour & Jan Möhlmann, 2008. "The internal market and the Dutch economy: implications for trade and economic growth," CPB Document 168, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Roy, Amrita & Mathur, Somesh K., 2016. "Brexit and India–EU Free Trade Agreement," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 31(4), pages 740-773.
    4. Sebastian Benz & Erdal Yalcin, 2013. "Ökonomische Effekte eines Freihandelsabkommens zwischen Japan und der EU," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(14), pages 35-40, July.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Tories' structural problem
      by chris in Stumbling and Mumbling on 2017-07-04 18:34:41

    More about this item

    Keywords

    Brexit; European Union; free trade agreements; trade in goods and services; FDI;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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