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Brexit: an economy-wide impact assessment on trade, immigration, and foreign direct investment

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  • Yaghoob Jafari

    (University of Bonn)

  • Wolfgang Britz

    (University of Bonn)

Abstract

We assess the impacts of Brexit on the UK economy along three dimensions: EU market access based on consideration of tariffs and non-tariff barriers, reduced numbers of EU citizens working in the UK, and reductions in FDI. Using a Computable General Equilibrium model with an integrated Melitz (Econometrica 71(6): 1695–1725, 2003) framework, we consider capital accumulation and population size feedback on tax income and demand for public services. In the worst-case scenario where all dimensions are considered simultaneously, welfare losses of approximately 1100 USD per UK citizen are predicted, exceeding the results of many other studies, which we attribute to our relatively comprehensive scenario design and application of the Melitz framework for manufacturing sectors. We find that a reduced labor force as a consequence of expected reduced immigration to the UK has the greatest welfare impact. Therefore, policy measures that increase labor participation and/or allow for continued immigration of workers could mitigate negative impacts of Brexit.

Suggested Citation

  • Yaghoob Jafari & Wolfgang Britz, 2020. "Brexit: an economy-wide impact assessment on trade, immigration, and foreign direct investment," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 17-52, February.
    • Handle: RePEc:kap:empiri:v:47:y:2020:i:1:d:10.1007_s10663-018-9418-6
    DOI: 10.1007/s10663-018-9418-6
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    References listed on IDEAS

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    Cited by:

    1. Fritz Breuss, 2020. "Pro-Globalization via FTAs in Times of COVID-19," WIFO Working Papers 617, WIFO.
    2. Xiaoqing An & William A. Barnett & Xue Wang & Qingyuan Wu, 2023. "Brexit spillovers: how economic policy uncertainty affects foreign direct investment and international trade," The European Journal of Finance, Taylor & Francis Journals, vol. 29(16), pages 1913-1932, November.
    3. Shin, Sangho & Balistreri, Edward J., 2022. "The other trade war: Quantifying the Korea–Japan trade dispute," Journal of Asian Economics, Elsevier, vol. 79(C).
    4. Konstantinos Koasidis & Alexandros Nikas & Hera Neofytou & Anastasios Karamaneas & Ajay Gambhir & Jakob Wachsmuth & Haris Doukas, 2020. "The UK and German Low-Carbon Industry Transitions from a Sectoral Innovation and System Failures Perspective," Energies, MDPI, vol. 13(19), pages 1-34, September.
    5. Sargent, Kristina, 2023. "The labor market impacts of Brexit: Migration and the European union," Economic Modelling, Elsevier, vol. 121(C).

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    More about this item

    Keywords

    Brexit; Computable general equilibrium modeling; Modern trade theory;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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