The Consequences of Brexit for UK Trade and Living Standards

By Swati Dhingra, Assistant Professor, Department of Economics, London School of Economics, Hanwei Huang, PhD candidate in Economics at LSE, Gianmarco I.P. Ottaviano, Professor of Economics, LSE; Non-Resident Senior Fellow, Bruegel; and CEPR Research Fellow, Thomas Sampson, Assistant Professor in the Department of Economics, LSE; Research Affiliate, CEPR, and John Van Reenen, Director of the Centre for Economic Performance, Professor of Economics at LSE and CEPR Research Fellow. Originally published at VoxEU.

What are the economic consequences of leaving the EU? This question is at the heart of the Brexit debate. Some studies address this question by analysing how countries fared after joining the EU (see Campos et al. 2014 or the survey by Crafts 2016). In recent work (Dhingra et al. 2016a, 2016b), we take an alternative approach that estimates the consequences of Brexit by directly modelling the effects of leaving the EU on the UK economy

Our work focuses on two channels: trade and net fiscal contributions to the EU budget. We present results using both a structural gravity trade model and reduced form empirical estimates. In both cases, we find that leaving the EU reduces living standards in the UK, although the exact magnitude of the loss is subject to considerable uncertainty as it is not known what policies the UK would adopt following Brexit.

Trade Between the UK and the EU

Membership of the EU has reduced trade costs between the UK and the EU not only through the removal of tariff barriers, but also through reductions in non-tariff barriers as part of the European Single Market. Reductions in trade barriers have increased trade between the UK and the EU. Prior to the UK joining the European Economic Community (EEC) in 1973, around one third of UK trade was with the EEC. In 2014, the 27 other EU members accounted for 45% of the UK’s exports and 53% of UK imports. EU exports comprise 13% of UK national income.

Higher trade benefits UK consumers through lower prices and access to better goods and services. At the same time, the UK’s workers and businesses benefit from new export opportunities that lead to higher sales and profits and allow the UK to specialise in industries in which it has a comparative advantage. Through these channels, increased trade raises output, incomes and living standards in the UK.

Structural Brexit Estimates

To estimate the effect of Brexit on the UK’s trade and living standards, we use a quantitative trade model of the global economy based on Costinot and Rodriguez-Clare (2013). Our model divides the world into 31 sectors and 35 regions. It allows for trade in both intermediate inputs and final output in both goods and services. The model takes into account the effects of Brexit on the UK’s trade with the EU and the UK’s trade with the rest of the world.

To forecast the consequences of the UK leaving the EU, we must make assumptions about how trade costs change following Brexit. It is not known exactly how the UK’s relations with the EU would change following Brexit, so we analyse two scenarios: an ‘optimistic’ scenario in which the increase in trade costs between the UK and the EU is small, and a ‘pessimistic’ scenario with a larger rise in trade costs.

The optimistic scenario assumes that in a post-Brexit world, the UK’s trade relations with the EU are similar to those currently enjoyed by Norway. As a member of the European Economic Area (EEA), Norway has access to the Single Market. But because Norway is not a member of the EU’s customs union, it faces some non-tariff barriers that do not apply to EU members, such as rules of origin requirements and anti-dumping duties. In the pessimistic scenario, we assume the UK is not successful in negotiating a new trade agreement with the EU and, therefore, trade between the UK and the EU following Brexit is governed by World Trade Organisation (WTO) rules. This implies larger increases in trade costs than the optimistic scenario.

Under both scenarios we take a forward-looking view. We assume EU integration will continue over the next decade and the UK will benefit less from future integration if it leaves the EU. The ‘pessimistic’ scenario assumes integration continues at the same rate achieved over the last 40 years, while the ‘optimistic’ scenario assumes the speed of integration falls to half its historical rate.

Our estimates also account for fiscal transfers between the UK and the EU. Like all EU members, the UK contributes to the EU budget. The net fiscal contribution of the UK to the EU budget is around 0.53% of national income (HM Treasury 2013). One benefit of Brexit for the UK would be a reduced contribution to the EU budget. But Brexit would not necessarily mean the UK would make zero contributions to the EU budget.

In return for Single Market access, EEA members such as Norway make substantial payments to the EU. On a per capita basis, Norway’s financial contribution to the EU is 83% as large as the UK’s (House of Commons 2013). Therefore, in the optimistic case we assume the UK’s contribution to the EU budget falls by 17% (that is, 0.09% of national income).

In the pessimistic case we assume the UK makes a bigger fiscal saving. Eurostat data shows that, after accounting for the money the UK receives back from the EU to fund research, firms and other non-governmental bodies, the UK’s contribution to the EU budget is 0.31% of national income. Therefore, in the pessimistic case, the UK saves 0.31% of national income.

Table 1 summarises our results. For each case, we report the percentage change in income per capita that has the same effect on living standards in the UK as Brexit. In the optimistic scenario, there is an overall fall in income of 1.28% that is largely driven by current and future changes in non-tariff barriers. Non-tariff barriers play a particularly important role in restricting trade in services, an area where the UK is a major exporter. In the pessimistic scenario, the overall loss increases to 2.61%.

The costs of reduced trade far outweigh the fiscal savings in both scenarios. In cash terms Brexit reduces average income per household in the UK by £850 per year in the optimistic scenario and £1,700 per year in the pessimistic scenario.

Table 1. The Effects of Brexit on UK Living Standards

  Optimistic Pessimistic
Trade effects -1.37% -2.92%
Fiscal benefit 0.09% 0.31%
Total change in income per capita -1.28% -2.61%

Source: Dhingra et al. 2016a.
Notes: Optimistic scenario: Increase in EU/UK Non-Tariff Barriers (+2%) + exclusion from future fall in NTB within EU (-5.7%), saving of 17% of 0.53% lower fiscal transfer. Pessimistic scenario: MFN Tariff + increase in EU/UK Non-Tariff Barriers (+6%) + exclusion from future fall in NTB within EU (-12.8%), saving of 0.31% net fiscal transfer.

Unilateral Liberalisation after Brexit?

Following Brexit, the UK would no longer be bound by the EU’s common external tariff on imports. Proponents of leaving the EU argue the UK could benefit from this change by unilaterally removing all tariffs on imports into the UK. To study this unilateral liberalisation policy, we re-do our analysis with the additional assumption that the UK removes all import tariffs.

Table 2 reports the results. We find that unilateral liberalisation reduces the costs of Brexit by 0.3 percentage points in both scenarios. But the overall effect of Brexit is still negative. The reason is that WTO tariffs are already low, so further reductions do not make much difference. In today’s world, integration is not a matter of lowering tariff rates. It requires policies, such as hammering out regulatory differences in services provision that rely on international agreement and cannot be achieved unilaterally.

Table 2. The Effects of Brexit and Unilateral Trade Liberalisation on UK Living Standards

  Optimistic Pessimistic
Brexit trade effects (from Table 1) -1.37% -2.92%
Fiscal benefit (from Table 1) 0.09% 0.31%
Unilateral liberalisation 0.30% 0.32%
Total change in income per capita -0.98% -2.29%

Source: Dhingra et al. 2016a.
Notes: This includes simulating the unilateral removal of all tariffs on imports into the UK.

Reduced-Form Brexit Estimates

The estimates in Tables 1 and 2 are based on a static trade model that does not account for the dynamic effects of trade on productivity. Recent research finds that dynamic effects may double or triple the size of the static effects reported in Table 1 (e.g. Bloom et al. 2014, Sampson 2016).

An alternative way to evaluate the consequences of Brexit is to use the results of reduced-form empirical studies of the effects of EU membership. Baier et al. (2008) find that, after controlling for other determinants of bilateral trade, EU members trade substantially more with other EU countries than they do with members of the EEA or EFTA. Their estimates imply that, if the UK leaves the EU and joins EFTA, its trade with countries in the EU will fall by about a quarter.

Combining this with estimates that a 1% decline in trade reduces income per capita by between 0.5% and 0.75% (Feyrer 2009) implies that leaving the EU and joining EFTA would reduce UK income per capita by between 6.3% and 9.5%. These estimates are much higher than the costs obtained from the static trade model, suggesting that the dynamic gains from trade may be important.

Conclusions

The economic consequences of leaving the EU will depend on what policies the UK adopts following Brexit. But lower trade due to reduced integration with EU countries is likely to cost the UK economy far more than is gained from lower contributions to the EU budget.

Even setting aside foreign investment, migration and the dynamic consequences of reduced trade, we estimate the effects of Brexit on trade and the UK’s contribution to the EU budget would be equivalent to a fall in income of between 1.3% and 2.6%. And once we include the long-run effects of Brexit on productivity, the decline in income increases to between 6.3% and 9.5%. Other possible political or economic benefits of Brexit, such as better regulation, would have to be very large to outweigh such losses.

References

Baier, S. L., J. H. Bergstrand, P. Egger and P. A. McLaughlin (2008) ‘Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism’, World Economy 31(4): 461-97.

Bloom, N., P. Romer, S. Terry and J. Van Reenen (2014) ‘A Trapped Factors Model of Innovation’, Centre for Economic Performance Discussion Paper No. 1261.

Campos, N., F. Coricelli and L. Moretti. (2015) ‘Economic Growth and Political Integration: Synthetic Counterfactuals Evidence from Europe’, mimeo.

Costinot, A., and A. Rodriguez-Clare (2013) ‘Trade Theory with Numbers: Quantifying the Consequences of Globalization’, CEPR Discussion Paper 9398.

Crafts, N. (2016) ‘The Growth Effects of EU Membership for the UK: A Review of the Evidence’, University of Warwick mimeo.

Dhingra, S., H. Huang, G. Ottaviano, J.P. Pessoa, T. Sampson and J. Van Reenen (2016a) ‘The Costs and Benefits of Leaving the EU: Trade Effects’, Centre for Economic Performance Technical Report.

Dhingra, S., G. Ottaviano, T. Sampson and J. Van Reenen (2016b) ‘The Consequences of Brexit for UK Trade and Living Standards’, Centre for Economic Performance Brexit Analysis 02.

Feyrer, J. (2009) ‘Trade and Income – Exploiting Time Series in Geography’, NBER Working Paper No. 14910.

HM Treasury (2013) ‘European Union Finances 2013’, 19th November.

House of Commons (2013) ‘Leaving the EU’, Research Paper 13/42, 1st July.

Sampson, T. (2016) ‘Dynamic Selection: An Idea Flows Theory of Entry, Trade and Growth’, Quarterly Journal of Economics 131(1): 315-80, 131(1): 315-380.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

38 comments

    1. JW

      Rather more than off-set by the UK’s immediate ability to impose its own tariffs on Chinese steel, just like the US in fact.

  1. JW

    Economic effects are unknown and unknowable. However they are not the heart of the issue, soveirgnity is.

    1. Synoia

      Yes, that’s what the Queen also said. (As Sovereign).

      Being fully aware of the German control over the EU through the ECB.

      And living though the German difficulty from 1933 to 1945.

            1. JW

              Extremely silly remarks.
              How about talking about the many members of the ‘elite’ in the US who supported Germany before Pearl Harbor?

  2. Brooklin Bridge

    Higher trade benefits UK consumers through lower prices and access to better goods and services. At the same time, the UK’s workers and businesses benefit from new export opportunities that lead to higher sales and profits and allow the UK to specialise in industries in which it has a comparative advantage. Through these channels, increased trade raises output, incomes and living standards in the UK.

    Gee, it was the best of times, the very best of times, it was the bestissimo of times. UK workers must be fat cats indeed. What a perfect wonderful world. Why would anyone at all want to exit such paradise?

    1. grayslady

      That was the point at which I stopped reading. Propaganda nonsense. Notice that there are no examples used and no numbers to support these claims–always makes me suspicious.

    2. Praedor

      You expressed my thoughts exactly. Clearly, the authors of this story are the very same clowns that push crap like TPP or TTIP, proclaiming that “free trade” is all win (and the little people don’t matter).

      Exit UK. Start the inevitable collapse of the looter EU. It was, and remains, doomed to fail anyway so why not help it fail sooner rather than later? Failing it later guarantees MUCH worse damage than the hit to stock portfolios of the looter class as seen right now. The 1% don’t matter. Let THEM eat cake.

  3. Keith

    The LSE …. jeez …. I’d take anything they say with a pinch of salt.

    After 2008, the Queen visited the LSE and asked its revered economists “If these things were so large how come everyone missed it?”

    In the common parlance “What do you clowns do all day?”

    1. Yves Smith

      I hate to tell you but your comment is silly.

      Pretty much every academic institution has people who are good and people who are hacks. Believe it or not, I can even name someone I respect at George Mason University.

      And LSE just happened to be the economics faculty to which the Queen could deliver her complaint. The University of Chicago is actually a much better target.

      Finally, the Queen’s complaint was presumably directed at financial economists and/or macroeconomists. This looks to be by trade economists.

      1. JW

        Yves, the LSE is one of many economic bodies attempting the forecast the unknowable.
        Perhaps if you were to publish one of the many that have produced forcasts that show the exact opposite it might help your argument about not following a particular party line.

  4. Keith

    Sometimes you need to act on principal and do the right thing.

    An old fashioned idea, I must admit.

    The EU has been corrupted and needs to be rebuilt from scratch.

    Let’s help it on its way.

    I used to think the EU was a good idea for many, many years.

    The bad times since 2008 have forced it to show its true colours and investor and bank interests always come first and those of the people last.

    Its treatment of Ireland, Spain, Portugal and Italy have been atrocious.
    Its treatment of Greece, the worst one could imagine.

    The current EU needs to disintegrate to be replaced by a better institution sometime in the future.
    It has been corrupted beyond repair.

    It follows the Neo-Liberal ideology that fails time after time and lays waste to countries and continents.

    Bankers have been following this ideology before it was even called Neo-Liberal, with disastrous effects for whole continents:

    When South American and African nations were in trouble the World Bank stepped in and offered loans as long as they reformed their economies with less public spending, austerity and privatising previously public companies.

    It was a disaster.

    In the Asian Crisis in 1998 the IMF stepped in and offered loans as long as they reformed their economies with less public spending, austerity and privatising previously public companies.

    It was a disaster.

    When Greece got into trouble recently the IMF stepped in and offered loans as long as they reformed their economy with less public spending, austerity and privatising previously public companies.

    It was a disaster.

    The same has been done in Spain, Italy, Portugal and Ireland.

    Hundreds of millions of people made to suffer by following a stupid, failed ideology.

    One nation refused to follow these stupid ideas that the IMF wanted them to follow, Malaysia, in the Asian crisis. It was the first to recover.

    Globally the technocrat elite are locked into a failed ideology; it’s time to get out of their failed institutions.

    Adios banker EU, hello new people’s EU.

    1. Keith

      Why we must escape Neo-Liberal institutions.

      Getting to the rotten core of Neo-Liberalism, a UK journey.

      1) Tony Blair announces the UK is a meritocracy where anyone can get to the top through hard work, drive and ambition.

      Next elected prime minister – Eton educated and married into the aristocracy.
      Eton boys occupy a myriad of positions of power.
      Privately educated elite firmly re-established.

      2) Everyone must be subject to market discipline and compete in a global market place.

      Industries that cannot compete in the global market place must fail.
      Heavy industry, manufacturing and mining decimated, severely affects the North of England and Midlands.

      The financial sector fails and is given unconditional bailouts with no effort to punish those who made the losses, the tax payer will just pick up the bill.

      3) The lasting damage to the economy caused by the financial crisis must be passed onto those at the bottom of society through austerity to balance the budget.

      Are you rich or are you poor?

      Neo-Liberalism helps the rich and disadvantages the poor.

      Nice rich bankers – how much do you want?
      Traditional industry – left to the whims of the global market place.

  5. HotFlash

    So, decrease in per capital income projected, but surely that will flow disproportionately to the 1% and above, as have the increases in GDP over the past few decades?

    1. Clive

      Yes, I agree. The problem with any “GDP will fall because…” analysis is that it doesn’t take into account whose economy we’re really living in. As you say, GDP is anything but evenly distributed.

      I think that is why a lot of the economic impacts arguments for or against a Brexit seem to generate little movement in support for, or opposition to, EU membership. With GDP, you can fool some of the people all of the time, or all of the people some of the time, but not everyone indefinitely.

  6. Sally

    Europe imports way more trade of goods into the UK than the UK exports to Europe. Does anybody really believe that all those German car companies are going to stop selling their BMWs and VW golfs to the UK if Britain leaves the EU? The UK sells more products to the U.S. and the Far East than it does with Europe. Europe will lose way more trade than the UK if we leave Europe. Are they going to not sell us goods and spite themselves? I think not.

    As a British citizen I will be voting to get out of the EU. What has happened to Greece is a wake up call to how the EU is really run. Some European countries outside of the EU have been able to negotiate individual trade deals with China, if they can do it, the UK can. It is ludicrous that the UK can’t negotiate its own trade deals. Europe is too diverse to have a one size fits all trade policy. I also resent the American president sticking his nose in to our affairs and telling us how to vote. Seeing as he is acting as nothing more than a corporate salesman for corporate America. (which love the EU) The elites are pulling out all the stops to keep us in a most undemocratic institution.

    This site does itself no credibility in pushing this nonsense, seeing as it urged Greece to not leave Europe last year. One wonders if it is acting as a neo liberal propaganda site for the US govt?

    1. Yves Smith

      I suggest you actually read the paper rather than argue from your misunderstanding of the economic impact. Need I point out that the buyers and sellers are different parties, so this does not net out as neatly as you suggest. The businesses selling to Europe would presumably take a hit. In addition, some financial services activity would shift to the Continent. Those BMWs will still be bought, for sure….by UK residents now working of Paris, Frankfurt, or Zurich.

      The sovereignty argument is valid but it has absolutely nothing to do with the economic impact. It’s reasonable to want more sovereignity but don’t kid yourself that there won’t be costs. And you exocoriate this site for pointing that out?

      And you clearly don’t buy information that does not fit with your prior beliefs. IT professionals who worked in banks and virtually all who didn’t agreed with our analysis of how Greece could not have a functioning new currency and related payments machinery in less than three years. The onus is on you to tell me how they get through when they need to import food, pharmaceuticals, and oil. You saw what happened with a mere two week banking crisis. Tell me how they function for the better part of 2-3 years like that. They won’t have a functioning society. Is that what you advocate.

      Showing hard boundary constraints is realism, not politics. We don’t do party line of any sort here. If you want to read pablum that confirms your existing views, you do need to read another site.

      1. JW

        Yves, it only takes reading to the 3rd para to see the failings of this paper. it quotes %ages of trade between UK and EU , it does not inform readers that these figures have fallen by 5% or so over the last few years. It also does not inform how a reasonably significant element are ‘double counted’ due to the Rotterdam effect.
        Your comments about financial services moving to Frankfurt, Paris etc is really without foundation, exactly the same arguments were trotted out when decision over Euro was taken by the UK,
        Of course every decision has ‘costs’. It just so happens sovereignty is worth a small and relatively brief cost. As others have said , its unlikely the UK/EU trading relationship would evolve as ‘worse’ than EFTA/EEA ( or even Canada/EU), given the demand from national economies.
        A serious question. Would you be so ‘realistic’ in ‘showing hard boundary constraints’ if we were talking about a polically evolved NAFTA with Mexico City as the new capital of the region? Or are your comments conditioned by being a citizen of such a powerful country that couldn’t possibly think of such a situation developing? In other words , stop being so condescending!

  7. The Heretic

    Typical economic talk…. Decline in income by 1.3% to 2.6%…. Zzzzz.

    For which section of the population, how will this decline innincome be distributed.

    Is there any accounting for how some industries could be rebuilt in the UK, either through the some companies choosing to redomicile in the UK or from government funding designed to acctually foster new industries? Perhaps productivoty could rise among the 99%, as people shift out of merchandising industry into more value added industry, like chemicals or telecom. Maybe the UK could actually prevent bad company takeovers, like the loss of Cadbury, an iconic British company that is now being moved out of the UK?

    The masters of finance in London won’t like a Brexit, but the 99% might enjoy it.

    1. vlade

      if you believe so, you’re really naive. most of the top 0.1% are very mobile already. yes, as Yves says, they like to have their good private schools, but those ade often boarding schools. So they keep they house in Switzerland, will nominally work in Ireland, and have their kids in UK where pound just crashed (I should point out that UK has a trade defict of about 7%, largest in the forst world and very much so not sustinable. given that the largest uk exports right now are services, and services are the most protected trade even in EU, with Brexit it will get even worse, which means pound down 10-20% easy. yes, it may revive some manufturing, but likely the sort that doesn’t require much labour) do the school fees are even cheaper now.

      I truly hate Brussells and think they killed any idea of any real union few years back. But anyone who thinks that Brexit will have trivial impact on the economy in any but the best scenario (i.e. EU will concede to about every UK ask in terms of services) is just dreaming. and, as usual, it will be the common folk who get fired, not the 0.01%. Yed, there’s a chance Uk will bebetter off outside EU, but the timeline for that is about ten years.

      I would be only too happy to eat my words, but I doubt I will.

      1. JW

        The UK has a current account deficit of 5.5%, it does not have a trade deficit of 7% , please get your facts correct. The actual trade deficit is more or leas at the same level it has been for many many years. What has changed since the 80s is the large investments made from overseas corporations and individuals into the UK has created a deficit in investments. There is nothing intrinsically right or wrong with a positive or negative net investment number.
        The rest of your comments suffer as a consequence. Cable is more or less unchanged recently.

      2. Praedor

        The reason, the SOLE reason, the primary reason that “services” (parasitism) is the main export is because of neoliberal creations like the EU and “free trade” deals. They are designed to hollow out otherwise self-sustaining/self-sustainable nations by taking away their ability to produce their own food or manufactured goods and sending them to slave labor 3rd world nations, FORCING the former strong, sovereign nation to be helplessly dependent on foreign nations for all core activities. No country and stay alive and sovereign based on a mere “service” economy.

        Services are NOT a point of pride, NOT a source of valid income and economic power or growth. They are waste. EVERY country that is capable of producing its own food should do so so it is NEVER beholden to other countries just to live. EVERY country should retain core manufacturing expertise and ability so, no matter what, they are still able to produce whatever they need to keep their society going…and free from dependence on others.

        The global economy is NOT guaranteed against crash. It is NOT safe from collapse. Neoliberalism in all its forms guarantees that when it does crash, then all the “advanced” or “developed” nations that are now pathetically dependent upon cheap Chinese, Vietnamese, or Latin American slave labor are truly dead when a fall occurs. No country should allow itself to become dependent on other nations for the basics needed to keep its own people fed, clothed, and housed. Services are crap, not a point of pride nor valid for primary focus.

        UK, get OUT of the EU, bring back some basic manufacturing and mining and farming and be able to go it alone if need be. Be dependent on no others.

  8. jabawocky

    I’ve not yet seen a coherent argument for leaving the EU. It’s not as if the UK would be a socialist state if only it wasn’t for those meddling EU bureaucrats. The UK would be cheerleading the subjugation of Greece etc if only if it could get its act together to influence Europe. The only economic advantage I can see is that capital flight at the prospect of brexit is reducing the value of the pound, but this won’t help the trade deficit.

    I can only assume the brexiters are retired and thus do not benefit from the minimum holiday, working time directive and pro-union laws that would be the first casualties of brexit with a tory government at the helm.

  9. Mickey Hickey

    I am Irish and we do not have a reputation for overestimating the intelligence of the British. I would be very surprised if the British voters have descended to the stage where they would willingly and knowingly score an own goal.

    The EU has its problems but it is still the best place for small and medium sized countries. Even the Irish who can be quite nationalistic have come to that realization.

    1. Praedor

      The EU is destined to fail. It CANNOT survive and will not survive in any long term. Why put off the inevitable?

      As for Ireland, it bought into neoliberalism with a vengence, looting the people and feeding corporations and finance to “grow” itself into collapse when the Big Recession hit. How’d you like the coddling and fellating of the looter class when the collapse came? How do you like your self-defeating, self-immolating “austerity” for the poor, largess for the rich? Ireland partook of a race to the bottom, the neoliberal way, with corporate tax policies that let them come in essentially on the taxpayer dime, the LITTLE taxpayer people who polish the shoes or vacuum the carpets of the worshiped big money.

      Ireland. Meh. Hasn’t learned from its own pain, officially cheered the gutting of Greece. Meh.

  10. cassandra

    Two points. First, the EU is mismanaging things (e.g., Greek recovery, migration) to such an extent that one must ask how anyone could be so stupid. I’ve come to realize that increasingly, the proper follow-up question in such cases is, WTF are they up to? In the face of such mismanagement, sovereignty and democracy are becoming increasingly, if not already critically, desirable. Second, I do believe a Brexit will be accompanied by an economic decline, not only for the economic reasons in this paper, but also for political reasons involving contagion. Just as it did in Greece, the EU must say to the world “Now witness the firepower of this fully armed and operational battle station!”, lest any other countries consider similar ideas.

    1. Praedor

      But their own decline is coming anyway, cannot be avoided. The EU is mismanaged AND badly designed. It is incapable of functioning well (unless you are of the looter class doing “financial services”) and will fail so it makes no difference if the UK exits and sees some degree of “decline”. Decline is baked in for the EU as a whole. You cannot badly design and managed a conglomeration and expect magical good performance.

      1. cassandra

        Agree. But incompetence alone can explain mismanagement and bad design only up to a certain point, beyond which a deliberate effort is required. To my eye we’re past that. I don’t really care exactly what the “looter class” is up to, but for the sake of democracy, I hope Britain and other countries exit while they still can. Or would it be better to leave the decision of removal up to the leach?

  11. tony

    I find lot of the assumptions dubious, especially the belief that increased trade liberalization and economic integration necessarily lead to higher GDP. Also, the belief that GDP should be the main measure of economic well-being.

    I read one of the papers, found here:

    http://anon-ftp.iza.org/dp8162.pdf

    Campos, N., F. Coricelli and L. Moretti. (2015) ‘Economic Growth and Political Integration: Synthetic Counterfactuals Evidence from Europe’,

    Even a quick read makes me suspicious. The model itself takes into account a number of variables, but the researcher can pretty easily test any number of comboes of variables to come to any comclusion they desire. There is no differentiation between EMU and no-EMU countries, or any mention of demand or employment, strange considering lack of demand and jobs is the main issue the EU faces now.

    In addition, they say things like this:

    Many believe, incorrectly, that this literature is vast because of the many excellent
    works on the benefits from trade liberalization, from the Single Market, and from the
    Euro.2

    The real history of rich countries becoming rich is not one of free trade.

    They chose these variables.

    Our choice of pre-treatment characteristics is based upon the specification used by
    Abadie and Gardeazabal (2003) but is more parsimonious. It includes the investment share
    of per capita GDP, population growth and initial income (all from Penn World Tables 7.0,
    PPP converted at 2005 constant prices), share of agriculture in value added, share of
    industry in value added, secondary gross school enrolment (percentage) and tertiary gross
    school enrolment (all from the World Bank’s World Development Indicators).21

    I don’t think it is detailed enough to provide useful information and one could have chosen different variables if one wanted to arrive to a different conclusion. I could be be wrong, but it seems like a fancy version of making stuff up to support your views.

  12. cassandra

    “lack of demand and jobs is the main issue the EU faces now”. You put your finger on a huge hole in the articles’ argument. The well-being of ordinary people is so uncorrelated from the asset market, GDP, and standard indicators that it isn’t even clear how a fall in standard indicators will impact living standards of society at large. Overall well being might hold up, or fall steeply at first; long term status will depend on how likely it might be that the chaotic political reaction, likely in the short term, is able to mature into a long term constructive movement. One entertains hopes that increased independence will be accompanied by increased democratic involvement, especially given the near-universality of contemporary populist discontent in the west. In any case, it’s past time to acknowledge that there should be an A in TINA in place of N, and that the EU isn’t helping anyone to find it.

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