Assessing the Macroeconomic Impact of Brexit Through Trade and Migration Channels

Abstract

This joint work by the Bundesbank, the Banque de France and the Banco de España highlights some of the numerous channels through which Brexit will affect the UK economy and its economic partners. In particular, it focuses on trade and migration channels, adding a more general assessment of exiting the EU through the use of a gravity model. The trade channel alone may cut UK GDP by 2% over the medium term if the UK reverts to WTO rules, while a more general gravity model would point to UK GDP falling by almost 6% compared to baseline. According to our analysis, the 'cost of non-Europe' (such as originally stated by Cecchini's seminal work in 1988) lies therefore between 2% and 6% in terms of real GDP losses for the UK. With the shock being largely asymmetric, the EA remains relatively unscathed by the UK's exit, with GDP less than 1% lower than baseline by 2023. The study also shows that results are sensitive to the envisaged policy response. In general, monetary and fiscal policies may act to cushion a Brexit-related shock; however, the potency of the policy response depends on the underlying source of the shock.

International Migration Drivers: Economic, Environmental, Social, and Political Effects

“…The authors also note the vital role of the minimum wage of a country in its population's decisions to emigrate to another country. Similar conclusions were reached in [40][41][42][43][44][45][46][47][48][49][50][51].…”

Estimating the Impact of EU Membership on United Kingdom’s Export by Using Gravity Model

“…Many studies that have applied the gravity model have used one specific model -the National Institute Global Econometric Model (NiGEM). On the basis of this model, Berthou et al (2019) find that, depending on the way the trade channel is modelled, UK GDP would decline by between 2% and 6% over the medium term under the WTO scenario. Previously, the NiGEM model is applied in the study by Kierzenkowski et al (2016), who examine shortterm and long-term channels of transmission and conclude that Brexit is a major negative shock for the UK economy 5 .…”

Supply chain networks, trade and the Brexit deal: a general equilibrium analysis

“…1 There is now a substantial body of work on the economic consequences of alternative forms of Brexit. Evaluation of potential post-Brexit scenarios has been carried out by using dynamic trade models (Dhingra et al, 2016;Van Reenen, 2016;Dhingra et al, 2017;Sampson, 2017); macroeconometric models (Kierzenkowski et al, 2016;Erken et al, 2018;Hantzsche et al, 2019;Berthou et al, 2020); and dynamic general equilibrium models (Pisani and Vergara-Caffarelli, 2018;Broadbent et al, 2019;Steinberg, 2019;McGrattan and Waddle, 2020). A separate and large body of work has explored the effects of Brexit utilising empirical methods including expectations augmented vector-autoregressions (Born et al, 2019); structural VAR (Driffield and Karoglou, 2019); gravity models (Campos and Timini, 2019); and event studies (Oehler et al, 2017).…”