Brexit and Non-Tariff Barriers: Effects on UK Business Investment and Productivity

Ahmet Kaya (), Hailey Low and Stephen Millard ()

No 572, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: This paper investigates the macroeconomic impacts of increased non–tariff trade costs resulting from Brexit on UK business investment and productivity growth. We develop a three–country Dynamic Stochastic General Equilibrium model that accounts for differences in country sizes as well as tariff and non–tariff trade costs. Our results suggest that the increased trade costs resulting from Brexit led to a sharp decline in trade between the United Kingdom and the European Union, with imports decreasing by 23.7 per cent and exports by 18.6 per cent. Following an initial decline of around 2.5 per cent, business investment gradually recovers but ultimately remains 1.2 per cent lower in the long term. We further provide simulations of the same shock using the National Institute Global Econometric Model, NiGEM, which suggests comparable macroeconomic effects. The long-term impact on per capita output is estimated at 1.2 per cent in our model, attributed solely to the rise in non-tariff trade barriers.

Keywords: Brexit; business investment; non-tariff barriers; productivity (search for similar items in EconPapers)
JEL-codes: C50 C68 E37 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-eur
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