This paper examines 12 economic simulation models that estimate the impact of Brexit. The UK’s GDP losses from a hard Brexit (reversion to World Trade Organization rules due to a lack of UK-EU agreement) range from –1.2 to –4.5 percent in most of the models analyzed.
A soft Brexit (e.g., Norway arrangement, which seems in line with the nonbinding text of the political declaration of November 14, 2018, on the future EU-UK relationship) has about half the negative impact of a hard Brexit. Only two of the models derive gains for the UK after Brexit because they are based on unrealistic assumptions. The authors analyze more deeply a computable general equilibrium model that includes productivity and firm selection effects within manufacturing sectors and operations of foreign multinationals in services. Based on this latest model, they explain the likely economic impact of Brexit on a wide range of macroeconomic variables, namely GDP, wages, private consumption, capital remuneration, aggregate exports, aggregate imports, and the consumer price index.
© Peter G Peterson Institute for International Economics
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