BREXIT or FIXIT - Trade and Welfare Effects of Leaving the European Union

With the European Parliament elections on the near horizon there is plenty of discussion about the merits and de-merits of continued UK membership of the European Union. The Centre for Economic Performance (CEP) has just launched a new report in its series of CEP Policy Analyses: ‘Brexit or Fixit? The Trade and Welfare Effects of Leaving the European Union’ by Gianmarco Ottaviano, Joao Paulo Pessoa, Thomas Sampson and John Van Reenen. Here are their main findings:

1. Over half of all UK exports go to the rest of the European Union (EU) – this corresponds to almost 15% of national income (GDP)
2. One cost of the UK leaving the EU (‘Brexit’) would be less trade with the EU because of higher tariff and non-tariff barriers today and reduced benefits from lower trade costs in the future. A benefit of leaving would be a lower net fiscal contribution.
3. We consider a pessimistic scenario where the UK suffers some formal increase in trade costs compared with anoptimistic one where it does not. A conventional calculation from a quantitative trade model produces income losses of around 3.1% of GDP (£50 billion) in the pessimistic case or 1.1% in the optimistic case (£18 billion).
4. When we factor in more realistic dynamic losses from lower productivity growth, a conservative estimate would double losses to 2.2% of GDP even in the most optimistic case. In the pessimistic case, there would be income falls of 6.3% to 9.5% of GDP, a loss of a similar size to that resulting from the global financial crisis of 2008/09.
5. There are further effects on immigration, foreign investment and regulations. Although harder to quantify, Brexit is also likely, on balance, to depress income through these channels.
6. Our current assessment is that leaving the EU would be likely to impose substantial costs on the UK economy and would be a very risky gamble.

To study their report in more detail - please head to: http://cep.lse.ac.uk/_new/publications/abstract.as...