Abstract
In the struggle between the forces of free trade and the restrictive influence of insularism the latter recently seems to have the upper hand. This is illustrated by the referendum of June 23, 2016 where the United Kingdom (UK) voted to leave the European Union (EU). In this paper we evaluate the consequences of this event for EU integration. In particular, we analyze how the extent of EU economic integration would change once the UK leaves the Union. To that end we develop an integration benchmark that consists of the steady state production equilibrium characterized by arbitrage pricing and perfect factor mobility. We apply metrics to measure the distance between this benchmark and the data. We find that the integration in the EU is incomplete and its trend is non-linear while Brexit would not bring negative consequences to its development.
Highlights
IntroductionOne of the prime motivations for Brexit is United Kingdom (UK)’s desire to re-establish sovereignty of its own borders (and territorial waters)
Since the mid-1980s there has been a surge of regional trade agreements (RTAs) around the globe as subsets of countries seek deeper integration among themselves.I
The following questions are often raised: (i) What are the objective grounds for challenging the model proposed by European Union (EU) over time? (ii) Is the conjecture correct that the EU shows symptoms of reduced economic integration over time? the answer to how the sequence of enlargements experienced since the 1957 Treaty of Rome affects the time pattern of EU integration assumes importance
Summary
One of the prime motivations for Brexit is UK’s desire to re-establish sovereignty of its own borders (and territorial waters). It wishes to form regional trading agreements with countries of their choice, namely the USA. Advocates of Brexit are against the free movement of people and wish to retain control of immigration. As these are key pillars of EU integration, other EU members are not inclined to accept any British proposal to keep access to the European single market
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