Abstract
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.
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- 1.
Mark Carney, Governor of the Bank of England, Inflation Report Press Conference (May 2016). Christine Lagarde, IMF Managing Director, Press Conference for the IMF UK Article IV Concluding Statement (May 2016).
- 2.
The Costs and Benefits of Leaving the EU: The Trade Effects. CEP Discussion Paper No. 1478 April 2017. For brevity, we refer to the authors: Dhingra, Huang, Ottaviano, Pessoa, Sampson and van Reenan as Dhingra et al.
- 3.
The CGE model is divided into 35 world regions; each region is disaggregated into 31 industrial sectors for goods and services. The data consist of bilateral trade relationships between each region and sector, using the United Nations COMTRADE database. The inter-sectoral relationships use the WIOD input-output tables from the European Commission (see Timmer et al. 2015).
- 4.
Dhingra et al. quote their results from the working paper by Méjean and Schwellnus (2009). In the published version, Table 1, column (3) gives a convergence rate for OECD countries of 0.584 (= 1−0.416) for OECD countries and 0.394 for EU countries.
- 5.
Imbs and Méjean (2017) define their sectors at the ISIC 2-digit level.
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Acknowledgements
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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Coutts, K., Gudgin, G., Buchanan, J. (2019). How the Economics Profession Got It Wrong on Brexit. In: Vlachos, V., Bitzenis, A. (eds) European Union. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-18103-1_13
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DOI: https://doi.org/10.1007/978-3-030-18103-1_13
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