Quantifying Brexit: From Ex Post to Ex Ante Using Structural Gravity

56 Pages Posted: 27 Aug 2020

See all articles by Beata Smarzynska Javorcik

Beata Smarzynska Javorcik

University of Oxford - Department of Economics; European Bank for Reconstruction and Development (EBRD)

Jasmin Gröschl

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Marina Steininger

CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2018

Abstract

Exploiting changes in the geography of economic integration in Europe, this paper uses detailed Exploiting changes in the geography of economic integration in Europe, we quantify the economic consequences of Brexit using a quantitative general equilibrium model that captures inter- and intranational production networks. We isolate three important layers of EU integration for the UK: First, we distinguish directional treatment heterogeneity in the relation between the UK and the EU27 economies. Second, we disentangle tariff and non-tariff barriers in EU agreements affecting the UK, which show differential effects on the gains from trade. Third, next to European integration agreements, we consider fiscal transfers, which affect the terms-oftrade of countries. The analysis reveals that directional effects matter for the size and distribution of the welfare effects from Brexit. Neglecting asymmetries in EU-UK relations overestimates the costs from Brexit by up to 40%. The welfare costs of Brexit are higher in the UK than in most other EU counties. However, heterogeneity tends to attenuate overall costs while giving rise to substantial heterogeneity between EU27 members and between sectors. We introduce a scenario that could shift the bargaining power and eliminates asymmetries in the costs from Brexit as soon as the UK fully liberalizes its market.

Keywords: structural gravity, European trade integration, general equilibrium, quantitative trade models, Brexit

JEL Classification: F150, F170, N740

Suggested Citation

Smarzynska Javorcik, Beata and Groeschl, Jasmin and Steininger, Marina, Quantifying Brexit: From Ex Post to Ex Ante Using Structural Gravity (2018). CESifo Working Paper No. 7357, Available at SSRN: https://ssrn.com/abstract=3338685 or http://dx.doi.org/10.2139/ssrn.3338685

Beata Smarzynska Javorcik (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

European Bank for Reconstruction and Development (EBRD) ( email )

Jasmin Groeschl

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Marina Steininger

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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