Brexit and the Finnish Economy

Markku Lehmus and Paavo Suni

No 48, ETLA Brief from The Research Institute of the Finnish Economy

Abstract: Abstract Leaving the EU reduces the UK output significantly relative to the baseline in all three trade scenarios (EEA, FTA and WTO) analyzed in the paper. The WTO scenario assumes the loosest links with the EU and biggest barriers to trade and hence, it implies the greatest negative impact on the UK economy, whereas the negative impact is the smallest in the EEA scenario. Brexit affects the Finnish economy via the weakening British economy along with its global impacts. Nevertheless, the effects on the Finnish economy seem to be to some extent more positive than what is observed in analyzed countries. The better development is due to the improved price competitiveness born by adjustments in the effective exchange rates and, also, a favorable combination of relevant trade partners, comprising for instance Russia and China that are relatively immune to the negative effects of Brexit. After the negative short-run hit caused by Brexit, the Finnish export industries are able to win new market shares from the UK industries. This simulation result concerning the long-run development looks very optimistic for Finland. It does not take into account the possible negative effects of Brexit on the EU integration process that may disrupt the single market. For these reasons, there is a substantial probability for more negative effects on the Finnish economy as well.

Pages: 7 pages
Date: 2016-08-23
New Economics Papers: this item is included in nep-cmp, nep-eec and nep-int
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Citations: View citations in EconPapers (1)

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