Abstract
We use the World Input–Output Database (WIOD) combined with regional sectoral employment data to estimate the potential regional employment effects of international trade barriers. We study the case of a no-deal Brexit in which imports to the United Kingdom (UK) from the European Union (EU) would be subject to tariffs and non-tariff trade costs. First, we derive the decline in UK final goods imports from the EU from industry-specific international trade elasticities, tariffs and non-tariff trade costs. Using input–output analysis, we estimate the potential output and employment effects for 56 industries and 43 countries on the national level. The absolute effects would be largest in big EU countries which have close trade relationships with the UK, such as Germany and France. However, there would also be large countries outside the EU which would be heavily affected via global value chains, such as China, for example. The relative effects (in percent of total employment) would be largest in Ireland followed by Belgium. In a second step, we split up the national effects on the NUTS-2 level for EU member states and additionally on the county (NUTS-3) level for Germany. The share of affected workers varies between 0.03% and 3.4% among European NUTS-2 regions and between 0.15% and 0.4% among German counties. A general result is that indirect effects via global value chains, i.e., trade in intermediate inputs, are more important than direct effects via final demand.
Highlights
The British people has voted to leave the European Union (EU) by applying article 50 of the Treaty on European Union in June 2016
Assuming that existing production structures and final goods prices need time to adapt to the changing trade framework between United Kingdom (UK) and EU-27, input–output analysis can be informative about potential short-term effects due to the decline in UK import demand from EU-27 and thereby complement results from general-equilibrium models which in general are more informative about the long-run
For Germany, for example, Vandenbussche et al (2019) estimate a loss in value added due to a no-deal Brexit of 1.76%, while our results indicate a loss in gross output of 0.61% and in value added of 0.49%, respectively
Summary
The British people has voted to leave the European Union (EU) by applying article 50 of the Treaty on European Union in June 2016. We study the international potential employment effects of the decline in British import demand To quantify these effects we take into account that production of final goods depends on intermediate inputs. Assuming that existing production structures and final goods prices need time to adapt to the changing trade framework between UK and EU-27, input–output analysis can be informative about potential short-term effects due to the decline in UK import demand from EU-27 and thereby complement results from general-equilibrium models which in general are more informative about the long-run. We use the World Input–Output Database (WIOD) to document (i) which industries, (ii) in which countries will be affected most by a decline of British imports from EU member countries and (iii) what the according regional and sectoral employment effects will be.
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