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Brexit: what economic impacts does the literature anticipate?

Abstract : The results of the June 2016 referendum in favour of the UK leaving the EU opened a period of huge economic and political uncertainty in the UK, and in the EU27. A large number of official and academic analyses have been published that address the economic impact of different modalities of Brexit. Section 1 analyses possible models for the future UK-EU relationship, from remaining in the single market and in the customs union, to a Free Trade Agreement (FTA) or world trade organization (WTO) rules. Section 1 also discusses the future of UK trade regulations (tariff and non-tariff barriers, trade agreements) and the various channels through which Brexit could have an impact on the UK economy (trade, foreign direct investment (FDI), migration, productivity, fiscal policy). The UK must make a trade-off between ensuring access to the EU market and increasing its regulatory autonomy. Section 2 surveys studies released on the impacts of Brexit, over short-and long-term horizons, under different scenarios, from a soft Brexit to a hard Brexit and a no deal scenario. These studies provide very different results depending on the methods they use and the assumptions they adopt on the future relationship between the UK and the EU27, mainly on how they view the effects of trade openness and regulations on productivity, in level as in growth rate. Studies usinggravity models and computable general equilibrium models generally find negative but small effects on UK GDP. Some studies increase these effects by adding the negative impact of a less open UK economy on labour productivity growth, even if Brexiteers want to open the UK to non-EU economies. Others believe that a liberalisation shock could boost output growth, but the UK is already a very liberal economy. The impact of Brexit on the GDP of the EU27 countries is on average 4 to 5 times smaller than on UK GDP, although some countries (Ireland in particular) are more affected. In the shorter term, uncertainty about Brexit has a negative effecton investment and exports, which is partly offset by lower interest rates and exchange rates.
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Submitted on : Tuesday, October 26, 2021 - 8:36:00 AM
Last modification on : Wednesday, August 24, 2022 - 2:54:18 PM
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Catherine Mathieu. Brexit: what economic impacts does the literature anticipate?. Revue de l'OFCE, 2020, Varia, 3 (167), pp.43-81. ⟨10.3917/reof.167.0043⟩. ⟨hal-03403036⟩

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