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Brexit - the economic impact: A meta-analysis

Berthold Busch and Jürgen Matthes

No 10/2016, IW-Reports from Institut der deutschen Wirtschaft (IW) / German Economic Institute

Abstract: A plethora of analyses attempts to quantify the economic impact of a Brexit for the United Kingdom (UK). The results are rather confusing - ranging from significant advantages to marked losses. This can be explained by significantly different methods, diverse assumptions, and the different aspects which are included - as this comprehensive meta-analysis shows with a comparative analysis. We cut through the fog of assertions and seek to get to the reality of the situation facing the UK after a Brexit. The more reliable amongst the many studies surveyed estimates that the net economic cost will remain moderate (between 1 to mostly less than 5 percent of economic output or income). However, we challenge this mainstream view. The risks of a Brexit are likely to be underestimated and the economic damage to the UK could be significantly higher than the mainstream view suggests. The authors suggest that pertinent forward-looking theoretical models are unable to capture the many important advantages of economic integration between the UK and the EU. They provide a thorough overview of the various advantages that are left out and point out their relevance for welfare and growth. Currently, there is no universally accepted method of estimation available to integrate all of these specific effects in a comprehensive way. The available backward-looking empirical studies that attempt to do this can be criticised to some extent. But they indicate significantly greater risks for the UK. Overall, net economic damage around 10 percent of economic output or more cannot be ruled out in a more pessimistic scenario in the longer run.

JEL-codes: F14 F15 F21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2016
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