How the Economics Profession Got It Wrong on Brexit
This chapter is an abridged version of working papers which are available at the Centre for Business Research, University of Cambridge, examining the HM Treasury evidence on the long-term harmful effects of Brexit. It also covers the LSE’s Centre for Economic Performance assessment. Both reports base their analyses either on gravity models or computable general equilibrium models. We review critically the alleged link between trade and productivity, which plays an important role in both reports. We find important flaws in both the application of gravity model results to evaluation of the costs of Brexit, and in the knock-on impacts from trade to productivity. The flaws always have the result of exaggerating the negative impact of Brexit.
We are grateful for insights gained in discussion with Adam Slater of Oxford Economics. He is not responsible for the views expressed in this paper. We are also grateful to Rachel Wagstaff of the Centre for Business Research for considerable help in the final preparation of this papers on which this chapter is based.
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