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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. Economic Policy, 32 (92). pp. 651-705. ISSN 0266-4658

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Identification Number: 10.1093/epolic/eix015

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. We simulate a range of counterfactuals re ecting 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 triples these losses and implies a decline in average income per capita of between 6:3% and 9:4%, partly via falls in foreign investment. The negative effects of Brexit are widely shared across the entire income distribution and are unlikely to be offset from new trade deals.

Item Type: Article
Official URL: https://academic.oup.com/economicpolicy
Additional Information: © 2017 CEPR, CESifo, Sciences Po
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: 23 Aug 2017 13:12
Last Modified: 20 Aug 2019 18:21
Projects: ES/M010341/1
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/84087

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