Policy Research

The consequences of Brexit for UK trade and living standards

Swati Dhingra, Gianmarco Ottaviano, Thomas Sampson, John Van Reenen

Summary

The article attempts to estimate the potential economic impact of the United Kingdom withdrawing from the European Union. Using a static model that exclusively looks at potential effects to tariffs and trade, the article estimates that a UK exit would lead to a loss in real income of 1% - 2.1%, which equates to 850-1700 GBP per household. Additionally the article then used a dynamic model that factors in potential efficiency loss due to less bargaining power and decreased competition. In this model, a UK exit is predicted to lead to a decrease in real income by 6.3%-9.5%. Overall, the study found that the potential for a UK exit to lead to positive economic results is very slim. The study also estimated the effect of a UK leave on other countries and found that a select few countries benefit and the effect on the U.S. is close to 0.

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Policy Implications

This article can be used in attempting to predict effects the United Kingdom’s recent vote to withdraw will have on itself, the EU, and the world. The article suggests that economic effects will be negative overall for the world, and the information can be used in discussing trade and foreign policy.