Brexit and The Impact of Gradual Economic Integration on Export

Rutger Teulings ()
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Rutger Teulings: University of Amsterdam, The Netherlands

No 17-075/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: I develop an index for economic integration accounting for its gradual and bilateral nature: the Gradual And Bilateral Integration (GABI) index. The graduality captures differences in the depth and path of five stages in economic integration and is an improvement over the use of binary dummy variables. Its bilateral nature allows for country-pair differences, which is not possible with the multilateral indexes in existing literature. I apply the GABI index to a gravity model for 18 OECD countries and estimate the impact of the five stages on export. The estimates for these five stages allow me to investigate four different Brexit scenarios in a general equilibrium analysis, ranging from soft to very hard Brexit. I find that in the latter scenario real export of the UK decreases by a significant 32% in the long run. Other EU countries also experience a decrease in real export, while non-EU countries experience an increase due to trade diversion effects. Similarly, I also investigate potential future free trade agreements like TTIP.

Keywords: Balassa stages; economic integration; gravity model; Brexit; TTIP (search for similar items in EconPapers)
JEL-codes: F13 F14 F15 (search for similar items in EconPapers)
Date: 2017-08-03
New Economics Papers: this item is included in nep-eec and nep-int
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Citations: View citations in EconPapers (2)

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