How much trade will the UK lose under Brexit?

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: The British people narrowly voted to leave the EU in June 2016, leaving the researchers with the difficult task of predicting an event that has never taken place before. This thesis aims to contribute to the research about Brexit by analyzing, using two different methods, the effects on UK exports to the EU in the scenario of it joining the EEA after leaving the EU. The first approach uses the estimation of the trade effects after the EU Enlargement in 1995, when Austria, Finland, and Sweden joined the EU from being members of the EEA, and mirror these effects to predict the impact on UK trade. The second method uses a measure of depth of trade agreements to estimate the effects of joining a less comprehensive trade agreement. A baseline gravity equation is estimated using fixed effects PPML as well as fixed effects OLS in both methods. The results show that the UK can expect a decrease in exports to the UK in the range between 19 % and 22 % depending on method. This change equals an amount that is almost four times as high as the UK net contributions to the EU during the period 2015/2016.

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