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GTAP Resource #6834

"Challenges in estimating the economic impact of Brexit: A comparative analysis of the short and long run effects using gravity and CGEs"
by Ortiz Valverde, Gabriela, Maria Latorre and Jose Cubells

We provide a thorough assessment of the impact of Brexit through trade combining both a static and a dynamic Computable General Equilibrium (CGE) model and a structural gravity model. Our analysis allows us to shed light not only on the role of trade, but also on the potential effects of Foreign Direct Investment (FDI), which has received less attention in the context of Brexit. We simulate a hard Brexit and the new Trade and Cooperation Agreement (TCA) negotiated by Boris Johnson. We analyse several reductions in the United Kingdom’s capital stock, which are consistent with the empirical evidence on potential reductions in the FDI capital stock after Brexit. This allows us to disentangle the effects of the static (short-term) impact of trade from its dynamic (long-term) impact. We focus on the impact for the UK but offer macroeconomic results for the European Union (including its individual countries), the US, China and the Rest of the world. The gravity model estimates considerably larger contractions in UK’s GDP, but a smaller role for FDI than the CGE. UK services sectors are affected more negatively than what previous analyses of Brexit focusing on trade suggest.

Resource Details (Export Citation) GTAP Keywords
Category: 2023 Conference Paper
Status: Not published
By/In: Presented during the 26th Annual Conference on Global Economic Analysis (Bordeaux, France)
Date: 2023
Created: Ortiz Valverde, G. (4/11/2023)
Updated: Ortiz Valverde, G. (4/11/2023)
Visits: 364
- Dynamic modeling
- Foreign direct investment
- Non-Tariff barriers
- European Union

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