Abstract
AbstractThis paper proposes a new panel data structural gravity approach for estimating the trade and welfare effects of Brexit. Assuming different counterfactual post‐Brexit scenarios, our main findings suggest that the UK's exports of goods to the EU are likely to decline within a range between 7.2% and 45.7% six years after Brexit has taken place. For the UK, the negative trade effects are only partially offset by an increase in domestic trade and trade with third countries, inducing a decline in the UK's real income of between 0.3% and 5.7%. The estimated welfare effects for the EU are not different from zero, but some members like Ireland are expected to also experience welfare losses.
Highlights
On Thursday, 26th of June 2016 the United Kingdom (UK) held a “Brexit-referendum” and the majority of the participating electorate voted in favor of the “leave choice”
The results suggest that the “Global Britain” strategy in which the UK signs bilateral trade agreements with all non-European Union (EU) economies included in the World Input-Output Database (WIOD) database would still not be sufficient to offset UK’s post-Brexit losses in trade with the EU
This paper studies the Brexit induced welfare effects stemming from trade in manufacturing goods by applying an estimation approach which allows to estimate counterfactual scenario outcomes consistent with structural trade theory and to exploit the system of multilateral resistances for calculating confidence intervals
Summary
On Thursday, 26th of June 2016 the United Kingdom (UK) held a “Brexit-referendum” and the majority of the participating electorate voted in favor of the “leave choice”. The empirical specifications of the gravity model suggested in this paper allow for phasingin effects in counterfactual policy scenarios such as e.g., the conclusion of new bilateral free trade agreements by the UK. For this purpose, we follow Bergstrand, Larch and Yotov (2015) and apply a distributed lag structure as only considering contemporaneous trade policy effects likely only allows to identify lower bound estimates. This is a very useful property for the representation of input-output relationships but constitutes a drawback for statistical inference as it puts specific restrictions on the error terms of any econometric model applied For this reason, we rely on a different and unique dataset which combines various sources for bilateral trade, domestic trade and total production of manufacturing goods..
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
