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Empirica

pp 1–36 | Cite as

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

  • Yaghoob Jafari
  • Wolfgang Britz
Original Paper

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.

Keywords

Brexit Computable general equilibrium modeling Modern trade theory 

JEL Classification

F14 F17 F21 C63 J61 

Notes

Acknowledgements

The authors would like to thank the anonymous referees for their insightful comments that greatly improved this paper.

Supplementary material

10663_2018_9418_MOESM1_ESM.pdf (15 mb)
Supplementary material 1 (PDF 15312 kb)

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Institute for Food and Resource EconomicsUniversity of BonnBonnGermany

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