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The costs and benefits of leaving the EU: Trade effects

Dhingra, Swati, Huang, Hanwei, Ottaviano, Gianmarco I. P., Pessoa, João Paulo, Sampson, Thomas and Van Reenen, John (2017) The costs and benefits of leaving the EU: Trade effects. CEP Discussion Papers (CEPDP1478). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

This paper estimates the welfare effects of Brexit, focusing on trade and fiscal transfers. We use a standard quantitative general equilibrium trade model with many countries and sectors and trade in intermediates, as in Costinot and Rodríguez-Clare (2014). We simulate a range of counterfactuals reflecting alternative options for EU-UK relations following Brexit. Welfare losses for the average UK household are 1.3% if the UK remains in the EU's Single Market like Norway (a “soft Brexit”).Losses rise to 2.7% if the UK trades with the EU under World Trade Organization rules (a “hard Brexit”). A reduced form approach that captures the dynamic effects of Brexit on productivity more than riples these losses and implies a decline in average income per capita of between 6.3% and 9.4%, partly via falls in foreign investment. These negative effects are widely shared across the entire income distribution and are unlikely to be offset from new trade deals.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2017 The Authors
Divisions: Economics
Centre for Economic Performance
Subjects: J Political Science > JN Political institutions (Europe)
Sets: Departments > Economics
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 21 Jul 2017 09:56
Last Modified: 19 Feb 2019 21:33
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/83612

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