The Costs and Benefits of Leaving the EU: Trade Effects
Gianmarco Ottaviano (),
João Paulo Pessoa,
Thomas Sampson and
John van Reenen ()
CEP Discussion Papers from Centre for Economic Performance, LSE
This paper estimates the welfare effects of Brexit, focusing on trade and fiscal transfers. We use a standard quantitative general equilibrium trade model with many countries and sectors and trade in intermediates, as in Costinot and Rodríguez-Clare (2014). We simulate a range of counterfactuals reflecting alternative options for EU-UK relations following Brexit. Welfare losses for the average UK household are 1:3% if the UK remains in the EU's Single Market like Norway (a "soft Brexit"). Losses rise to 2:7% if the UK trades with the EU under World Trade Organization rules (a "hard Brexit"). A reduced form approach that captures the dynamic effects of Brexit on productivity more than triples these losses and implies a decline in average income per capita of between 6:3% and 9:4%, partly via falls in foreign investment. These negative effects are widely shared across the entire income distribution and are unlikely to be offset from new trade deals.
Keywords: Trade; Brexit; General equilibrium (search for similar items in EconPapers)
JEL-codes: F13 F15 F17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-int
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Journal Article: The costs and benefits of leaving the EU: trade effects (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1478
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