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A computable general equilibrium analysis of Brexit: Barriers to trade and immigration restrictions

Author

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  • Ortiz Valverde, Gabriela
  • Latorre, María C.

Abstract

This paper estimates the economic effects of different types of restrictions on trade and immigration in the UK after Brexit. Regarding trade restrictions, we focus on the increase in tariffs and NTBs with respect to the EU. We also analyze a scenario in which the UK removes all tariffs on its trade to all its trading partners. Concerning immigration, we run a 5-year cumulative annual reduction in net migrants by 87.000 workers following OECD estimations. The study is conducted using a 21-sector, 5-region (UK, REU, US, China, ROW) Computable General Equilibrium (CGE) Model, which allows us to estimate the impact on GDP, Welfare, wages and capital remuneration, together with sectoral output and trade flows. Our estimates suggest that Brexit would negatively affect the UK much more than the EU. Welfare reductions would be between -0.38% and -1.94% for the UK; while they would be between -0.03% and -0.17% in the EU. This is because the EU is a crucial trade partner for the UK, which cannot be easily substituted through trade with other regions in the world. Restrictions on migrants would bring about additional reductions in the range between -0.55% and -0.35% of GDP, depending on whether they affect skilled or unskilled workers, respectively.

Suggested Citation

  • Ortiz Valverde, Gabriela & Latorre, María C., 2017. "A computable general equilibrium analysis of Brexit: Barriers to trade and immigration restrictions," Conference papers 330226, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:330226
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    File URL: https://ageconsearch.umn.edu/record/330226/files/9135_Valverde.pdf
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