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Taking Back Control or Losing It? An Analysis of the Possible Economic Impact of Brexit


September 25, 2017
4:15pm - 5:30pm
Wapp Conference Room, Taubman 102, Harvard Kennedy School, 79 JFK Street
September 25, 2017
4:15pm - 5:30pm
Wapp Conference Room, Taubman 102, Harvard Kennedy School, 79 JFK Street

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According to the majority of economic studies and to the European Commission's estimations, Brexit will be far more damaging for the UK than for the European Union (EU). From the economic point of view, it seems less harmful for both to be able to negotiate a soft Brexit with rather small barriers. However, for political reasons the EU may want to deter other nations from following the UK’s path and may want to negotiate a self-damaging hard Brexit.

Brexit implies a shrinking of the EU market and, in that sense, is not good news for UK neither for EU. Firms lose profit opportunities. However, given the much larger size of EU, the process is much more harmful for UK. In fact, the EU is able to recover a sizeable part of its lost trade with the UK through the rise of intra-EU free trade. The UK has forsaken this privileged preferential access to EU, thus, negatively affecting half of its aggregate exports and imports. Overall, although Brexit may offer good prospects for some manufacturing firms coming from outside the Brexit block, at a more aggregate level benefits for outsiders seem scarce. Brexit’s scope seems confined to the EU landscape.

The negative impact of trade and foreign direct investment seems to be more important than UK’s contributions to the EU budget (with a maximum net fiscal saving of -0.53% of UK’s GDP), or reductions in the flows of migrants. However, very restrictive migration policies in the UK, such as a reduction in “all EU migrants”, “net EU migrants” or the “5-year policy” the government is talking about could be even more damaging than trade and FDI related effects of Brexit.

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