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Tariffs, domestic import substitution and trade diversion in input-output production networks: an exercise on Brexit

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  • Raffaele Giammetti

Abstract

In this paper we employ the World Input–Output Database to develop a multi-sector inter-country model that allows us to identify the channels through which the trade effects of Brexit would propagate. The inclusion of global value chains and indirect Brexit effects in the model leads to estimates that diverge with the results of the main literature. Indeed, we found that Brexit could be risky and costly not only for the UK but also for many EU countries. Furthermore, we develop a second model and present the first empirical analysis on the consequences of domestic import substitution and trade diversion policies in Input–Output schemes. We found that allowing sectors and countries to partly substitute foreign products, leads to significantly lower losses for both macro-regions: the UK and EU27 would lose, at worst, the 0.28 and 0.5 percent of value-added, respectively.

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  • Raffaele Giammetti, 2020. "Tariffs, domestic import substitution and trade diversion in input-output production networks: an exercise on Brexit," Economic Systems Research, Taylor & Francis Journals, vol. 32(3), pages 318-350, July.
    • Handle: RePEc:taf:ecsysr:v:32:y:2020:i:3:p:318-350
    DOI: 10.1080/09535314.2020.1738347
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    Cited by:

    1. Matthew Smith & Yasaman Sarabi, 2021. "UK trading patterns within and between regions in the automotive sector—A network analysis," The World Economy, Wiley Blackwell, vol. 44(2), pages 510-529, February.
    2. Raffaele Giammetti & Luca Papi & Désirée Teobaldelli & Davide Ticchi, 2020. "The Italian value chain in the pandemic: the input–output impact of Covid-19 lockdown," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(3), pages 483-497, September.
    3. Kreuter, Helena & Riccaboni, Massimo, 2023. "The impact of import tariffs on GDP and consumer welfare: A production network approach," Economic Modelling, Elsevier, vol. 126(C).
    4. Vijay Victor & Joshy Joseph Karakunnel & Swetha Loganathan & Daniel Francois Meyer, 2021. "From a Recession to the COVID-19 Pandemic: Inflation–Unemployment Comparison between the UK and India," Economies, MDPI, vol. 9(2), pages 1-19, May.
    5. Kirill Muradov, 2021. "Towards input–output‐based measurements of trade creation and trade diversion," The World Economy, Wiley Blackwell, vol. 44(6), pages 1814-1841, June.
    6. Pahl, Stefan & Brandi, Clara & Schwab, Jakob & Stender, Frederik, 2020. "Cling together, swing together: The contagious effects of COVID-19 on developing countries through global value chains," IDOS Discussion Papers 21/2020, German Institute of Development and Sustainability (IDOS).

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