Impact of Brexit: Firm Exit and Loss of Variety

Nobuhiro Hosoe

No 16-12, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: The impact of Brexit is investigated using two computable general equilibrium (CGE) models, featuring conventional constant-returns-to-scale (CRS) technology and increasing-returns-to-scale (IRS) technology with firm heterogeneity, a la Melitz. The imposition of trade barriers would trigger a significant contraction of the bilateral trade between the United Kingdom (UK) and the rest of the European Union (EU). While a CRS CGE model predicts that the trade barriers would benefit or only marginally harm the UK fs welfare, the IRS model predicts a larger loss through firm exit and loss of varieties, comparable to the expected saving of the UK fs contribution to the EU budget. Among the UK industries, the textiles and apparel, steel and metal, and automotive and transportation equipment sectors would suffer most severely from their sharp fall in exports.

Pages: 26 pages
Date: 2016-08
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Working Paper: Impact of Brexit: Firm Exit and Loss of Variety (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ngi:dpaper:16-12

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