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Quantifying Brexit: from ex post to ex ante using structural gravity

Author

Listed:
  • Gabriel Felbermayr

    (University of Kiel, CESifo & GEP)

  • Jasmin Gröschl

    (ifo Institute, LMU & CESifo)

  • Marina Steininger

Abstract

Exploiting changes in the geography of economic integration in Europe, this paper quantifies the effects of Brexit from ex post to ex ante using structural gravity. By isolating the directional treatment effects of EU agreements for the UK, the analysis reveals important heterogeneity across agreements, sectors, and within pairs. We find that these directional effects matter for the size and distribution of the welfare effects of Brexit—the withdrawal of the UK from EU agreements resulting into a return of trade costs to the situation quo ante. We make this point with the help of a modern multi-sector trade model that is able to capture inter- and intranational production networks. In line with other papers, the welfare costs of Brexit are higher in the UK than in most other EU countries. However, heterogeneity tends to attenuate overall costs while giving rise to substantial heterogeneity between EU27 members and sectors. A scenario that could shift bargaining power eliminates asymmetries in the costs of Brexit as soon as the UK fully liberalizes its market.

Suggested Citation

  • Gabriel Felbermayr & Jasmin Gröschl & Marina Steininger, 2022. "Quantifying Brexit: from ex post to ex ante using structural gravity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(2), pages 401-465, May.
    • Handle: RePEc:spr:weltar:v:158:y:2022:i:2:d:10.1007_s10290-021-00436-z
    DOI: 10.1007/s10290-021-00436-z
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    More about this item

    Keywords

    Structural gravity; General equilibrium; Treatment heterogeneity; Brexit;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • N74 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: 1913-

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