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The costs and benefits of leaving the EU: Trade effects

Dhingra, Swati and Huang, Hanwei and Ottaviano, Gianmarco I. P. and Pessoa, João Paulo and 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)
Series: Working Papers > CEP Discussion Papers
Date Deposited: 21 Jul 2017 09:56
Last Modified: 05 Jul 2018 13:47
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/83612

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